The states on Monday said the Centre should consider using the escape clause to monetise its fiscal deficit to support the pandemic-hit economy. The states pitched for an extension of the goods and service tax compensation cess mechanism for five years beyond 2022 and that it be ratified in the upcoming Union Budget.The suggestions were among several made by the states in the customary pre-budget discussions with Finance Minister Nirmala Sitharaman. “The possibility of using all support measures, including the escape clause, should be placed on the table for consideration,” said one state finance minister, asking not to be identified.
Some states were in favour of the Centre invoking the escape clause in the FRBM law that allows the Reserve Bank of India (RBI) to subscribe to Central government loans. This, the minister said, will engender confidence that the government will do what it takes to sustain growth and thereby build a virtuous cycle. Another suggestion was that borrowing of up to 5% of GDP should be permitted in 2021-22 as well to enable states to sustain their expenditure on capital works and on Covid-19 prevention measures.