<p>The 16th Finance Commission, whose report was tabled in Parliament, is trying to accept a new fiscal reality and shape its recommendations accordingly. The Finance Commission is a Constitutional mechanism that periodically resets fiscal relations between the Centre and states, and among the states. Headed by Arvind Panagariya, it has been receptive to suggestions and demands. The concerns of states, especially the economically better-performing ones, remain, though the Commission has made an attempt to address them in some ways. It has retained the states’ share in the divisible pool of Central taxes at 41 per cent against a demand to raise it to 50 per cent. But it has changed the criteria and weights used to apportion the devolved quantum of taxes among states. This has led to an increase in the share of southern states from 15.8 per cent under the 15th Finance Commission to 17 per cent now. But it is pointed out that they once enjoyed a 21 per cent share. </p>.<p>Some changes in the criteria for devolution have drawn attention. The increase in the weightage of the 'contribution to GDP' measure from 2.5 per cent earlier to 10 per cent now would reward states achieving better growth outcomes. At the same time, the weightage for demographic performance has been reduced from 12.5 per cent to 10 per cent. While the Commission’s recommendations are considered an attempt to balance various imperatives such as growth and equity, states that felt punished for good governance and economic performance are not entirely happy. The Karnataka government has claimed that the state would lose Rs 10,000 crore to Rs 15,000 crore annually. Tamil Nadu has called the recommendations a disappointment. </p>.Guest faculty: Karnataka's Higher education dept seeks legal opinion.<p>Though the states’ share in the divisible pool remains at 41 per cent, their actual share in total Central tax collections is materially lower. This is because the Centre has increasingly levied cesses and surcharges outside the divisible pool; consequently, collections are not shared with the states. The decision to abolish revenue deficit grants (RDGs) and state- or sector-specific grants will also work against states whose resources have shrunk due to the introduction of GST. A significant portion of the increase in transfers from the Centre to the states comes from revenue transfers under Centrally Sponsored Schemes, which the Centre controls. Although the Commission's recommendations seem to recognise problems faced by the states, they have not substantially promoted fiscal federalism.</p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
<p>The 16th Finance Commission, whose report was tabled in Parliament, is trying to accept a new fiscal reality and shape its recommendations accordingly. The Finance Commission is a Constitutional mechanism that periodically resets fiscal relations between the Centre and states, and among the states. Headed by Arvind Panagariya, it has been receptive to suggestions and demands. The concerns of states, especially the economically better-performing ones, remain, though the Commission has made an attempt to address them in some ways. It has retained the states’ share in the divisible pool of Central taxes at 41 per cent against a demand to raise it to 50 per cent. But it has changed the criteria and weights used to apportion the devolved quantum of taxes among states. This has led to an increase in the share of southern states from 15.8 per cent under the 15th Finance Commission to 17 per cent now. But it is pointed out that they once enjoyed a 21 per cent share. </p>.<p>Some changes in the criteria for devolution have drawn attention. The increase in the weightage of the 'contribution to GDP' measure from 2.5 per cent earlier to 10 per cent now would reward states achieving better growth outcomes. At the same time, the weightage for demographic performance has been reduced from 12.5 per cent to 10 per cent. While the Commission’s recommendations are considered an attempt to balance various imperatives such as growth and equity, states that felt punished for good governance and economic performance are not entirely happy. The Karnataka government has claimed that the state would lose Rs 10,000 crore to Rs 15,000 crore annually. Tamil Nadu has called the recommendations a disappointment. </p>.Guest faculty: Karnataka's Higher education dept seeks legal opinion.<p>Though the states’ share in the divisible pool remains at 41 per cent, their actual share in total Central tax collections is materially lower. This is because the Centre has increasingly levied cesses and surcharges outside the divisible pool; consequently, collections are not shared with the states. The decision to abolish revenue deficit grants (RDGs) and state- or sector-specific grants will also work against states whose resources have shrunk due to the introduction of GST. A significant portion of the increase in transfers from the Centre to the states comes from revenue transfers under Centrally Sponsored Schemes, which the Centre controls. Although the Commission's recommendations seem to recognise problems faced by the states, they have not substantially promoted fiscal federalism.</p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
