States may not get more funds, after all

The Hindu Business Line, March 20, 2015

By Pradeep S Mehta

Higher devolution from the tax pool has been negated by cutbacks in existing schemes. This has not sunk in

Kahlil Gibran, the mystic Lebanese poet, in Sand and Foam , quips, “Half of what I say is meaningless; but I say it so that the other half may reach you.” This may well ring true for the devolution of funds to States, following the 2015-16 Budget.

Much has been said about the increased devolution, which is expected to provide freedom to States to spend the way they like, redefine Centre-State relations, and push cooperative federalism. However, this is just one half of the story.

To understand the scenario better, one needs to take a closer look at the Budget numbers. It is true that States’ share of taxes and duties collected by the Centre is expected to increase from Rs. 3.38 lakh crore (revised estimates of fiscal 2015) to Rs. 5.24 lakh crore in the next fiscal. However, total grants and loans to States and Union Territories are expected to correspondingly reduce from Rs. 3.55 lakh crore to Rs. 3.28 lakh crore.

Behind numbers
Total grants and loans to States and UTs comprise non-plan grants and loans, assistance for central and centrally sponsored schemes, and central assistance for State and UT plans.

While the first two are expected to increase by around Rs. 28,000 crore and Rs. 19,000 crore respectively, central assistance to State and UT plans bears the brunt of total reduction, with an expected decrease of around Rs. 74,000 crore (28 per cent), from Rs. 2.70 lakh crore to Rs. 1.95 lakh crore.

This means States are expected to self-fund their development plans. Interestingly, this component has seen a steady increase during the last few years, and in fiscal 2015, an increase of around 150 per cent was recorded (from Rs. 1.05 lakh crore in fiscal 2014 to Rs. 2.70 lakh crore).

Consequently, the Centre has made an absolute volte-face on its promise to help States finance their development plans, and has found the perfect alibi in increased devolution of taxes collected and recommendations of the 14th Finance Commission.

Have the States understood the Centre’s intentions? Subsequent to the Union Budget, the Rajasthan and Kerala governments presented their budgets, and more will follow. A review of their budgetary documents shows that they might not have fully understood the Centre’s intent.

The Centre has cut its gross budgetary support to schemes such as Sarva Shiksha Abhiyan (SSA), Integrated Child Development Service (ICDS), Rashtriya Krishi Vikas Yojana (RKVY), and Integrated Watershed Management Programme (IWMP) by Rs. 6,894 crore (around 77 per cent), Rs. 8,316 crore (51 per cent), Rs. 3,944 crore (47 per cent) and Rs. 812 crore (35 per cent), respectively. Read More>>

The writer is the secretary General of CUTS International. Amol Kulkarni, senior policy analyst, CUTS International, contributed.

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