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bonanza for states
Pursuing his concept of cooperative federalism, ahead of its first full budget due this weekend, the Narendra Modi-led government on Tuesday accepted the recommendations of the 14th Finance Commission for a record increase of 10 per cent in the States\' share of the divisible pool of central taxes, despite negative implications for the fiscal deficit.
Centre accepts 14th Finance Commission report
- States share in Central taxes up by 10% to 42%
- States have been demanding for 50% devolution
- Despite this, 11 States to face revenue deficit
- Additional allocation for them including AP
New Delhi: Pursuing his concept of cooperative federalism, ahead of its first full budget due this weekend, the Narendra Modi-led government on Tuesday accepted the recommendations of the 14th Finance Commission for a record increase of 10 per cent in the States' share of the divisible pool of central taxes, despite negative implications for the fiscal deficit.
In a letter to Chief Ministers, Modi said: "We have wholeheartedly accepted the recommendations of the 14th Finance Commission, although it puts a tremendous strain on the Centre’s finances." As per the increased devolution suggested in the report of the 14th Finance Commission, the States will get Rs 3,48,000 crore in 2014-15 and Rs 5,26,000 crore in 2015-16.
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"There is a shift from scheme- and grant-based support from the central government to a devolution-based support. Hence, the devolution of 42 per cent of divisible resources," the PM said. "Beyond this 42 per cent and the grants to states for strengthening gram panchayats and municipal bodies, an additional amount has been allocated for 11 States that will still be revenue deficit after devolution," Finance Minister Arun Jaitley told reporters here.
"The big among these deficit States have been identified as Andhra Pradesh after division, Assam, Jammu and Kashmir, Himachal Pradesh and West Bengal while the smaller ones include some northeastern states like Manipur and Nagaland," he added.
The huge hike over the current 32 per cent is a little short of the States’ demand for a 50 per cent share. This is also the largest increase in tax devolution since the 7th Finance Commission doubled the states’ share of excise duties from 20 per cent to 40 per cent in the 1980s.
