Not every state was happy when the Union government implemented the 14th Finance Commission recommendation to raise the share of devolution of Central funds to states from 32 per cent to 42 per cent in February 2015.
In fact, some even felt that the Centre was only compensating them on what was being taken away from them elsewhere. Their apprehension stemmed from the Centre's decision to cut the quantum of funds it used to earmark for key centrally sponsored schemes (CSS) following the implementation of the commission's recommendations. The question was whether the flagship social sector schemes, including ones that guaranteed minimum workdays, health and education for rural areas, would suffer due to lack of funds.
One year later, an analysis by Delhi-based think-tank Centre for Policy Research indicates that their fears were misplaced. In fact, the report said the change in central government fund transfers in 2014/15 and 2015/16 was positive in all the 19 states, including Tamil Nadu, which had feared a loss of Rs 35,485 crore in five years, and Bihar that had said the implementation of the recommendation would do more harm than good to the state. The analysis showed that tax devolution and transfers from the Centre to Tamil Nadu was 21 per cent higher in 2015/16 compared to the previous fiscal, and that of Bihar was 29 per cent. In fact, compared to 2014/15, most state governments saw an increase in the quantum of CSS transfers. It also indicated that the states had responded to the increased fiscal autonomy and social sector expenditure.
The study notes that both Karnataka and Maharashtra increased their investments in water supply, sanitation, housing and urban development by 44 per cent and 66 per cent, respectively, during the period under comparison. Uttar Pradesh and Rajasthan prioritised welfare of scheduled castes, scheduled tribes and other backward classes, and social welfare and nutrition. Bihar saw its expenditure on labour and labour welfare increase by 78 per cent in 2015/16 compared to the previous year.
The study noted that with more funds in their coffers, the states must be more transparent and accountable. It also hinted that the Centre may have to find innovative ways to drive national priorities, given that it has less funds to spend. In fact, it might have to incentivise state governments to enhance expenditure in areas of larger national interest.
The study is just a pointer. But it is time for the government think tank, Niti Aayog, to do a comprehensive analysis of the impact of devolution. If states, indeed, have more fiscal autonomy, one needs to devise a better mechanism to make them more accountable.