ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Some Hits and Misses

The Fourteenth Finance Commission has come up with some bold and game-changing recommendations such as an increase in the tax share going to states from 32% to 42%, setting up of the Fiscal Council to make the centre accountable, and doing away with direct transfers to states under centrally-sponsored schemes. But unlike the Thirteenth Finance Commission the FFC has not bothered to estimate the impact of the Goods and Services Tax and disinvestment proceeds on gross domestic product as well as fiscal space. The discontinuation of the practice of giving special weight to a Fiscal Discipline Index, started by the Eleventh Finance Commission is an unwelcome development. This, coupled with the provisions of the revenue deficit and untied grants, is likely to encourage fiscal profligacy among several states.

1 Positive Recommendations

The Fourteenth Finance Commission (FFC) has for the first time in the history of finance commissions of India shown the guts to recommend a very large increase in the share of taxes going to the states. This increase in the share from 32% to 42% of tax devolvement has largely resulted from a change in the magnitude and composition of some specific purpose grants, on the one hand, and the clubbing up of the component of direct transfers to the total resource pool, on the other. As is known, until 2014–15, when finally the report of the Chaturvedi Committee (2011) was implemented by the centre, the amount of such “direct transfers” was being passed on to the independent agencies in different states, through centrally-sponsored schemes (CSS) without being routed through the states’ exchequer. Evidently this was discretionary and therefore was being used for serving political purposes as well. The FFC has thus done a commendable job of enhancing the transparency and objectivity in the distribution of central transfers of funds among the states by removing this element of direct transfers.

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