Finance panel wants more funds for states and centre agrees

Finance commission also asks govt to give funds to local bodies

GN Bureau | February 24, 2015


#funds   #tax   #revenue   #finance commission  


The GST (good and services tax) may meet less resistance with the government on Tuesday accepting  suggestion of the 14th Finance Commission to raise share of states in central taxes to 42% from current 32%. Finance minister Arun Jaitley on Tuesday tabled the report of the commission, along with an action taken report, in Parliament. The states will get Rs 3.48 lakh crore in 2014-15 and Rs 5.26 lakh crore in 2015-16. The higher amount will help to reassure the states that they will not be at odd with the GST.

The budget to be presented in parliament on Saturday (February 28), is expected to incorporate many of the suggestions of the commission.

"The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements," the report said. This is indeed the single largest increase ever recommended by a finance commission.

See full report here

http://finmin.nic.in/14fincomm/14fcrengVol1.pdf

http://finmin.nic.in/14fincomm/14fcrengVol2.pdf

As per the recommendations, the government may also transfer many centrally sponsored schemes to the states. An overwhelming majority of states have suggested reducing the number of centrally sponsored schemes as well as outlays on them, the commission report said. The commission has identified 30 schemes for transfer to the states after taking into account higher devolution.

As for the other suggestions of the commission with regard to promoting cooperative federalism, implementation of the GST, fiscal consolidation, pricing of public utilities and public sector enterprises, sources said they would be examined by the government would study and take decisions.

The Commission has also recommended distribution of grants to states for strengthening duly elected gram panchayats and municipal bodies. These grants will be divided into basic grants and performance grants. The total grant to the local bodies including panchayats and local bodies for the five-year period ending March 31, 2020 works out to Rs 2.88 lakh crore.

Main highlights of the Commission's report.
 
1. 42 percent of gross tax revenue will be devolved to states.

2. Grants to local bodies and municipalities to be increased.

3.  The government has to evolve a new institutional arrangement to strengthen cooperative federalism by expanding the role of the Inter-State Council.

4. Role of the Inter-State Council to be expanded, especially with the Planning Commission being abolished. The role of the council will be to identify sectors in states that will be eligible for central grants; it should indicate criteria for inter-state distribution and help design schemes with appropriate flexibility to states for implementation. The council also has to identify and provide area-specific grants.

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