Give states their fair share, protect their fiscal space |
States have often expressed concern regarding their fiscal space being squeezed in recent years. There was a noticeable change that was brought about by the 14th Finance Commission in raising the share of states in the divisible pool of central taxes from 32 per cent to 42 per cent. Both the Finance Commission (FC) and non-Finance Commission (non-FC) grants had broadly remained stable over the period from 12th Finance Commission to the 14th. There was a marginal increase in the grants in the 15th Finance Commission period. It will be interesting to see how these shares are likely to change under the recommendations of the 16th Finance Commission, which has recently submitted its report.
Transfers from the Centre to the states consist of tax devolution and FC and non-FC grants. We can consider trends in these relative to the combined revenue receipts of the Centre and the states with respect to some of the recent FC periods. Tax devolution and FC grants are determined by the FC whereas non-FC grants are at the discretion of the central government. States’ share in central taxes relative to the combined revenue receipts increased from an average of 15 per cent during the 13th FC period to 19.2 per cent in the 14th FC period — an increase of 4.25 percentage points. There was a corresponding........