The Narendra Modi government is set to direct 42% of the divisible pool of Union taxes to states, a record increase of 10% as recommended by the 14th Finance Commission report, which was tabled in Parliament on Tuesday.
According to the report, a higher tax devolution to states would provide greater autonomy to them in financing and designing of their own schemes as per their needs and requirements.
The total devolution to states in 2015-16 will be 5.26 lakh crore against 3.48 lakh crore in 201415, representing a rise of 1.78 lakh crore.
Finance minister Arun Jaitley said the Centre has accepted the recommendations of the report, a move that would cement the structure of cooperative federalism.
Centrally sponsored schemes and discretionary payments need to come to an end, Jaitley said. “States cannot indefinitely keep looking at New Delhi… you cannot have a controlling command structure in New Delhi.”
He underlined that states need more flexibility and “one-sizefits-all” formula would not be suitable for states.
The Finance Commission report said it was key to reform the existing system of fiscal transfers from the Centre to states in a comprehensive manner. “We believe existing arrangements for transfers between the Union and states need to be reviewed with a view to minimising discretion, improving the design of transfers, avoiding duplication and promoting cooperative federalism,” the report said.
States would be given the freedom to formulate their own schemes and programmes. Besides, the Finance Commission has also earmarked 2.87 lakh crore for panchayats and municipalities during 2015-20.
Eleven states including Andhra Pradesh, Telengana, West Bengal and Assam among others have been identified as having revenue deficit and a total grant of 1,94,821 crore has been recommended during the award period for these states.
“There is a case for transfers from the Union government to states to augment expenditure in specific sectors with a high degree of externalities in order to ensure the desired minimum level of expenditures in every state,” the report said.