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

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This is in reference to the letter “Perplexing Data” by Akhilesh Tilotia (EPW, 23 March 2019), commenting on our article “Challenges to Indian Fiscal Federalism” (EPW, 2 March 2019). We thank the author for the careful reading of the article, and for highlighting the aspects that needed clarification.

One of the issues highlighted in the letter is that the various components of transfers do not add up to 100. It needs to be noted that the figures in the columns are not mutually exclusive. For example, normal central assistance (NCA) is a component of the state plan. Similarly, revenue deficit grants are a part of the statutory grants provided by the Finance Commission. Hence, the total will not add up to 100. The purpose was to illustrate the changing shares of conditional and unconditional grants in the total transfers of grants from the union to the states.

As regards discrepancy in net proceeds, the method of computation is clear in the article and the loss to states worked out is correct. Since net proceeds is the basis for computing share of taxes to be devolved to the states, the loss in tax share will be a percentage of the loss in net proceeds arising due to the proliferation of cess and surcharges, and short computation of net proceeds. It is to be taken note of that the figure of net proceeds is not published in the budget documents.

On the gross domestic product (GDP)– gross state domestic product (GSDP) gap, it is well known that 3% of the GDP is much higher than 3% of the GSDP. It can be observed from the Fourteenth Finance Commission Report (Chapter 14, Table 14.2), the 3% fiscal deficit as a percentage of GSDP is 2.75% of the GDP. Also, the fiscal consolidation road map proposed by the Thirteenth Finance Commission (Chapter 9, Table 9.7) shows that the fiscal deficit of states as a percentage of the GDP for the entire period of 2010–11 to 2014–15 ranged between 2.6% and 2.4% of the GDP.

T M Thomas Isaac, R Mohan Thiruvananthapuram,

Lekha Chakraborty

New Delhi

Updated On : 26th Apr, 2019

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