Chief Economic Adviser Arvind Subramanian said on Friday that calculations showed that the total transfers from the Centre to the States as a percentage of the divisible pool of its net tax revenue would remain nearly the same even after the acceptance of the 14th Finance Commission’s recommendations.

However, transfers from the Central government would no longer be scheme-and-grant-based, and it would rather be devolution-based, leading to more spending freedom for the States — and that would be a “watershed change in the story of Indian federalism.”

In a presentation to reporters after Union Finance Minister Arun Jaitley tabled the Economic Survey 2014-15 in Parliament, Dr. Subramanian said that in the last three years, the Centre transferred, on an average, 64 per cent of the divisible pool of its net taxes to the States under various heads. This included the States’ share of 32 per cent of the pool on account of the 13th Finance Commission’s award and the Centre’s assistance to the States by way of plan transfers.

The Centre would have had to transfer to the States funds amounting to 65 per cent of the pool had the recommendations of the 14th Finance Commission (which is for a 42 per cent States’ share against the 13th Finance Commission’s 32 per cent) applied in the current year, he said.

The 14th Finance Commission’s recommendations do not apply in the current year; they will be applicable for the five-year period starting April 1.

 With the share for the States in the pool rising, the Centre’s plan transfers to the States by way of assistance would diminish, the Economic Survey indicated. “Balancing the enhanced fiscal autonomy of the States with preserving fiscal space of the Centre entails a reduction in the Central assistance to the States,” it said.

The Survey said the biggest gainers from the 14th Finance Commission’s award in absolute terms under the general category States are Uttar Pradesh, West Bengal and Madhya Pradesh. Jammu & Kashmir, Himachal Pradesh and Assam are the most benefited in the special category.

The 14th Finance Commission’s recommendations would add substantial spending capacity to the States’ budgets, the Survey said.

Source: TH