Budget 2019: After 5 good years under Modi, growth in central transfers to states set to see steep fall

Union Budget 2019: During the last five years of Modi government, central transfers to states have always grown in double digits but this year will mark a departure.

Finance Commission, Total Transfers to States, Finance Commission Grants, Central Schemes
Union Budget 2019: The growth rate in total transfers to states has come down to single digit in PM Modi's tenure.

Budget 2019 India: The growth rate in the Union government’s total transfers to states will plummet to 6.6% in 2019-20 from 15% in the last financial year, marking a departure from double digit growths for five years running.

Finance minister Nirmala Sitharaman has pegged total transfers to states at around Rs 13.29 lakh crore, which is equal to almost half of the total budgeted expenditure of the Union government. The transfors will see an increase of Rs 83,000 crore over last year’s transfers.

Every year, the Union government transfers a huge amount to states by way of their share in central taxes, and also in the form of finance commission grants and central schemes. This amount has seen steady growth during the last five years of Prime Minister Modi. For the first time in three years, the transfers will be less thab half of the Union government’s budgeted expenditure.

Soon after forming his government in May 2014, Prime Minister Narendra Modi had accepted the 14th finance commission’s recommendations. The commission headed by former RBI governor YV Reddy had recommended a 10% increase in states’ share in central taxes from 32% to 42%.

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It was a quantum jump as the 12th and 13th finance commissions had made only incremental increases in states’ share in their devolution formula. While the 12th finance commission headed by former RBI governor Dr C Rangarajan increased the states’ share in the divisible pool from 30 to 30.5%, the 13th finance commission headed by Vijay Kelkar increased it by 1.5% to 32% of the divisible pool.

Finance Commission, Total Transfers to states, finance commission grants, central sector schemes, centrally sponsored schemes
Budget 2019: Growth rate of central transfers to states will come down to single digit this year.

This resulted in a significant increase in total transfers to states during the first tenure of Prime Minister Narendra Modi.

In the first year of Modi 1.0, total transfers to states went up by a whopping 28.35%, from Rs 5.29 lakh crore in 2013-14 to Rs 6.79 lakh crore in 2014-15.

The next year, total transfers to states again went up by more than 20%, from Rs 6.79 lakh crore in 2014-15 to Rs 8.34 lakh crore in 2015-16, an increase of 22.83%.

However, the growth rate of total transfers to states came down to below 20% in 2016-17. However, it was still a healthy growth of 18.22% over the previous year, as total transfers went up from Rs 8.34 lakh crore in 2015-16 to Rs 9.86 lakh crore in 2016-17.

The first major decline came in 2017-18, when the total transfers to states grew by just 10%, from Rs 9.86 lakh crore in 2016-17 to Rs 10.85 lakh crore in 2017-18. Nonetheless, the growth was still in double digits.

Next year, the total transfers to states surged again as it went up from Rs 10.85 lakh crore in 2017-18 to Rs 12.47 lakh crore in 2018-19, a healthy growth of 15%.

However, this will be the first year in Prime Minister Narendra Modi’s tenure when the growth rate in total transfers to states will be in single digit at 6.57%, which is less than half of the growth rate of 15% witnessed last year. According to the Union budget presented by Nirmala Sithraman on July 5, total transfers to states have been pegged at 13.29 lakh crore, 6.57% more than last year’s figure of Rs 12.47 lakh crore.

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