JOIN USStates to get 42 per cent of Centre's tax revenue
The Centre on Tuesday accepted the 14th Finance Commission’s recommendation to give states 42 per cent of the Union government’s tax revenue as against the current figure of 32 per cent.
For 2015-16, this translates to an additional Rs 1.78 lakh crore for the states, which have also been given the freedom to spend the money according to their needs.
This means that over a period of five years, the states would get Rs 5.26 lakh crore of revenue from the centre’s divisible pool. In its report, the commission had also recommended an increase in grants to local bodies and municipalities. Besides, it suggested that the states be given additional borrowing headroom for developmental spending if they meet certain conditions of the debt-GDP ratio.
“The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements,” the report said.
Immediately after the report was tabled in Parliament, Prime Minister Narendra Modi wrote in a letter to the states: “You will appreciate that, following the acceptance of the 14th Finance Commission’s recommendations, we are moving away from rigid centralised planning, forcing a ‘one-size-fits-all' approach on states.”
The move, however, drew criticism from former planning commission member Abhijit Sen, who wrote a dissent note to the Finance Commission’s report.
“With the Centre’s net tax resources shrinking by nearly one per cent of the GDP as a result of higher devolution, implementing these shifts will require fairly drastic alteration to present arrangements,” Sen said.
Modi said that though the Centre would be left with decreased funds, he wanted to “strengthen the hands of states” in pursuing their development agenda as per their requirements.
To a question on whether the step would put pressure on the Centre’s resources and a consequent pressure on fiscal deficit, Finance Minister Arun Jaitley answered, “Wait until the Budget is presented on February 28.”
The Finance Commission suggested minimising discretionary transfer of resources from the Union to the states, implying that states would be freer to use devolved resources in areas they see fit.
With the Planning Commission having been abolished, the Inter-State Council would have the expanded role of identifying sectors in states that would be eligible for central grants.
In another recommendation, the Finance Commission advocated the winding up of the National Investment Fund and putting disinvestment receipts in the Consolidated Fund. It also suggested sharing a portion of disinvestment proceeds with the states in which a public sector enterprise is located. The Y V Reddy-headed commission, which has given recommendations for 2015-2020, said the states should use this extra fiscal space for productive assets.