States to get 42 per cent share in central taxes

Prime Minister Narendra Modi informed the chief ministers (CMs) on Tuesday that the Centre has accepted recommendations of the 14th Finance Commission, including raising the share of states in Union taxes by a record 10 per cent to 42 per cent. The Centre and will give the states an additional Rs 1.78 lakh crore this fiscal.

The report of the Commission , headed by former Reserve Bank of India governor YV Reddy, also recommended a grants-inaid of Rs 48,906 crore for 11 revenue deficit states, including Andhra Pradesh post division West Bengal and Jammu and Kashmir, for 2015-16. For the period up to 2020, it will be more than Rs 1.94 lakh crore.

The total devolution to the states in 2015-16 will be Rs 5.26 lakh crore as against Rs 3.48 lakh crore in 2014-15 representing an increase of Rs 1.78 lakh crore. The total devolution to states during the five-year period up to 2019-20 will be Rs 39.48 lakh crore.

"As per the suggestions of the Commission, less money would remain in the hands of the Central government. 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," Modi wrote in a letter addressed to the CMs.

Modi further wrote that while the Commission is in favour of all state plans being met through resources being devolved, the Centre will continue to support national priority projects like 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 added.

"With this, we are 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.

Union Finance Minister Arun Jaitley told the media here that the 42-per cent increase in states' share is the largest-ever change in percentage of devolution. In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2 per cent. Compared to the devolution in 2014-15, the total outgo towards the states in 2015-16 will see an increase of over 45 per cent, he added.

3.6% FISCAL DEFICIT TARGET

>> The 14th Finance Commission has suggested a fiscal deficit target of 3.6% of GDP in 2015-16 and 3% in subsequent years on the back of likely pick-up in growth

>> The fiscal deficit for FY15 was pegged at 4.1%. The revised estimates will be unveiled in the Budget

>> Recommendations of the Commission helps the Centre to devolve Central taxes among states