Indian Union Budget 2021-22: The 15th Finance Commission has retained states’ aggregate share in the central tax pool for FY22-FY26 at 41% and has suggested the creation of a dedicated Rs2.38-lakh crore non-lapsable fund for defence and national security.

As in FY21, 41% of the divisible segment of central taxes will go to all states/UTs, except J&K and Ladakh, and an additional 1% to the latter two in the next five years till FY26. This is against a 42% share for all states, including the then J&K, during the 14th Finance Commission (FY16-FY20).

The Commission has also retained the weights assigned to various parameters for FY22-FY26 as was recommended for FY21.

It suggested that the Centre may constitute a Modernisation Fund for Defence and Internal Security (MFDIS) by garnering resources from the Consolidated Fund of India (CFI), disinvestment proceeds of defence PSUs, proceeds from the monetisation of surplus defence land and proceeds of receipts from defence land likely to be transferred to state governments and for public projects in future. Transfers from CFI, as feared by some state governments, might reduce the divisible pool to some extent.

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The government tabled the Commission’s final report for five years through FY26 along with the action taken report in the Parliament on Monday. Its report for FY21 is already under implementation.

In the Commission’s assessment, gross tax revenues for the FY22-FY26 period are expected to be Rs135.2 lakh crore, of which divisible pool (after deducting cess and surcharges & cost of collection) is estimated to be Rs103 lakh crore.

“Total XVFC transfers (devolution and grants) constitutes about 34% of estimated gross revenue receipts of the Union, leaving adequate fiscal space for the Union to meet its resource requirements and spending obligations on national development priorities,” the Commission said.

For the Centre, it suggested to bring down the fiscal deficit from 7.4% in FY21 to 4% by FY26. However, in the Budget, the Centre has adopted a higher deficit level by stating that it will be brought down from 9.5% in FY21 to 4.5% in FY26.

The Commission has set net borrowing for states at 4% of GSDP for FY22 and an additional borrowing ceiling of 0.5% of GSDP will also be provided, subject to conditions. States will be expected to reach a fiscal deficit of 3% of GSDP by FY24.

In view of the uncertainty that prevails, the Commission suggested crafting a new FRBM Act guided by a High-powered Inter-governmental Group.
It also recommended total revenue deficit grants of Rs2,94,514 crore for 17 states and Rs4,36,361 crore for local governments over the award period. The total grants-in-aid support to the health sector over the award period works out to be Rs1,06,606 crore.