The 13th Finance Commission has recommended a higher share of the Centre’s revenues to state governments in a march to increased fiscal federalism even as it walked the wedge on a resource crunch by crafting a four-year roadmap for fiscal consolidation.
The panel, whose recommendations have been accepted by the Centre, also pleaded or a gradual exit from the stimulus to counter the recent economic downturn. Every panel decides the pattern for the next five years.
The share of states in net proceeds of central taxes available for a division with states has been recommended at 32 per cent between 2010-11 and 2014-15, up from the 30.5 per cent at present, the commission said in the report tabled in Parliament on Thursday.
Currently, states and Union territories get about Rs 1,64,000 crore from the Centre per year.
The shareable central taxes include corporation tax, income tax, wealth tax, customs, excise duty and service tax. Cess charges on education and road imposed by the central government is not shared with states.
The commission, headed by former Finance Secretary Vijay Kelkar, has laid down a revised fiscal roadmap that calls for eliminating the Centre’s revenue deficit and bringing down fiscal deficit by 3 per cent of the gross domestic product by 2014.
“Government of India, despite the strains, has accepted the recommendations of the Finance Commission,” Finance Minister Pranab Mukherjee said.
The commission has asked the government to begin a phased withdrawal of the fiscal sops announced last year to counter the economic downturn.
“A calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10 should be the main agenda of the Centre,” the panel said.
The tax breaks announced through the last two years had left a gaping hole in the public finances with the government borrowing Rs 4 lakh crore, pushing the fiscal deficit to a precarious 6.8 per cent of the GDP.
The commission also proposed that a new Fiscal Responsibility and Budgetary Management Act should have a space for relaxing targets of deficits on account of economic shocks such as the Pay Commission-mandated payouts to government employees.