Finance Commission's Record share to states boosts Federalism

New Delhi, Feb 27 (IANS) Within days of the government accepting the 14th Finance Commission's recommendations for a 10 percent hike in the states' share of the divisible pool of central taxes despite negative implications for the fiscal deficit, its Economic Survey 2014-15 released Friday said the 14th FC will enhance fiscal federalism.

According to Survey, "all states stand to gain from the Fourteenth Finance Commission (FFC) transfers in absolute terms."

The FFC recommendations will enhance cooperative and competitive federalism, the survey said.

"The biggest gainers in absolute terms under general category states are Uttar Pradesh, West Bengal and Madhya Pradesh," a finance ministry official said.

"Jammu and Kashmir, Himachal Pradesh and Assam are most benefitted in the special category states," he added.

"The states with lower per capita net state domestic product receive larger transfers on average per capita," the ministry said in a statement.

This is also the largest increase in tax devolution since the 7th Finance Commission doubled the states' share of excise duties from 20 percent to 40 percent in 1978. It means a whopping Rs.348,000 crore payout in 2014-15 and Rs.526,000 crore in 2015-16.

Moreover, after assessing the revenue and expenditure of the states for the period 2015-20, the commission has recommended an additional grant of Rs.1.94 crore (Rs.19.4 million) to meet the deficit of 11 revenue deficit states.

"The total devolution to states in 2015-16 will be significantly higher than in 2014-15. This naturally leaves far less money with the central government," the Prime Minister's Office said earlier this week announcing the approval of Narendra Modi.

"The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements," the 14th FC report said.

"The consequence of this much greater devolution to the states is that the fiscal space for the centre will reduce in the same proportion," it added.

In this connection, the Survey said the country can balance short-term boosting of public investment for economic growth along with "fiscal discipline".

It also "urged" the government to aim at bringing down it's fiscal deficit down to 3 percent of GDP.