14th Finance Commission Higher share to States in Central taxes given
Source: The Sangai Express / Courtesy : Economic Times

New Delhi, February 24 2015: Government has accepted the Finance Commission's recommendations for a substantial hike in share of States in Central taxes and asked them to tailor make schemes as per their needs, Prime Minister Narendra Modi said.

The Finance Commission had suggested raising share of States in Central taxes to 42 per cent from the current 32 per cent.

As per the increased devolution suggested in the report of the 14th Finance Commission, the States will get Rs 3.48 lakh crore in 2014-15 and Rs 5.26 lakh crore in 2015-16 .

"Each recommendation has to be implemented for a period of 5 years.

States can't indefinitely look at New Delhi.

They have to gradually become self-sufficient," said Finance Minister Arun Jaitley.

"Constitution of NITI Aayog is also based on the same philosophy.

Never before has Finance Commission increased share of States in divisible pool by 10 pc," Jaitley said.

"The higher tax devolution will allow States greater autonomy in financing and designing of schemes as per their needs and requirements," the report said.

While Abhijit Sen, part-time member of the Commission headed by YV Reddy, gave a dissenting note, the Government has accepted the majority decision on tax devolution to the States.

Sen, in his note, favoured devolution of 38 per cent of the divisible pool in the first year.

After assessing the revenue and expenditure of the States for the period 2015-20, the Commission recommended a grant of Rs 1.94 crore to meet the deficit of 11 States.

"The consequence of this much greater devolution to the States is that the fiscal space for the Centre will reduce in the same proportion," the report said, adding that the dominant view was that the majority of the resources should flow in the form of tax devolution.

An overwhelming majority of States have suggested reducing the number of Centrally sponsored schemes as well as outlays on them, the Finance Commission report said.

Observing that States will see a quantum jump in transfers, sources said: "This is the largest ever change in the percentage of devolution.

In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2 per cent increase.

Prime Minister Narendra Modi has written to Chief Ministers, informing them of the Government's decision to accept the recommendations of the 14th Finance Commission.

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