The government tabled the 14th Finance Commission report in Parliament on Tuesday, accepting its key recommendations including a 10 percentage point increase in the share of states in the Centre’s tax revenue from the current 32% to 42% — the single-largest increase ever handed out to states.
Prime Minister Narendra Modi has written to chief ministers saying that the government has decided to devolve maximum money to states and allow them the required freedom to plan the course of states’ development in line with the spirit of cooperative federalism.
Modi said states are free to change centrally sponsored schemes and plan the course of their development.
Greater transfer of funds to state governments will “naturally leave far less money with the central government,” the Prime Minister said in a letter to chief ministers. “However, we have taken the recommendations of the 14th Finance Commission in a positive spirit as they strengthen your hand in designing and implementing schemes as per your priorities and needs.”
The Finance Commission, headed by former Reserve Bank of India (RBI) YV Reddy, was of the view that all state plans —centrally sponsored schemes — should be met through the resources that are transferred to states.
The commission is a body set up under Article 280 of the Constitution, primarily to recommend measures and methods on how revenues, need to be distributed the Centre and states.
Modi said the Centre will continue to support national priority projects such as poverty elimination, MNREGA, education, health, rural development, agriculture and a few others.
“...When you (states) are flush with resources, I would like you to have a fresh look at some of the erstwhile schemes and programmes supported by the Centre. States are free to continue or change these schemes and programmes as per their discretion and requirement,” Modi said.
The Prime Minister said the government was moving away from “rigid centralised planning, forcing a ‘one-size-fits-all’ approach on states. States have always been voicing their opposition to this philosophy for years.
Politically, the increase could also serve as a confidence-building measure, particularly relevant given that the Centre and states are negotiating the introduction of a single goods and services tax (GST) under which the latter will forgo most of their taxation powers.
GST’s implementation has faced political hurdles because states fear it will rob them of their fiscal powers.
Modi said the higher devolution is all towards the fulfilment of co-operative federalism.
“Resources are going to states to ensure that poverty is eliminated, jobs are created; houses, drinking water, roads, schools, hospitals and electricity are provided. This has never happened in this country before,” he said.
The Prime Minister said the government was involving states in discussing and planning national priorities to maximise the outcome from every rupee spent either at the central or state level.
“It was with this spirit of Team India that all chief ministers have been made equal partners in the governing council of NITI Aayog. This is our strategy to take the country to a faster and yet inclusive growth trajectory through co-operative federalism, which is real and true federalism,” he said.