Budget 2015: Foundation set for states to blaze a trail

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Updated: March 1, 2015 10:03:10 AM

The finance minister, in his speech, reiterated his resolve to “embrace the states as equal partners in the process of growth...

The finance minister, in his speech, reiterated his resolve to “embrace the states as equal partners in the process of growth” and to generate progress “led by the states and guided by the government of India”. This sentiment, if followed through to its logical conclusion, can make significant changes in the country’s governance.

The share of central taxes accruing to states has been increased from 32% to 42% by the 14th Finance Commission, a substantial rise given the recommendations of earlier Commissions, but note that the increase subsumes the various modes of central Plan transfers that were made by the Centre to the states through the Planning Commission. As Annex 6.3 shows, the aggregate transfers to states as a percentage of the divisible pool has gone up from 61.88% in BE 2014-15 to 62.75% in 2015-16. The fiscal space available to the Centre remains virtually intact.

In terms of collective devolution to states, there has been a compositional, rather than a quantitative, shift. The room for discretionary transfers by the Centre to states, sectors or projects has been eliminated. Thus, the entire additional 10% would now be transferred to states based on a formula derived from the principles laid down by the 14th Finance Commission. Though there will be losers and gainers among states in terms of relative proportion, in absolute terms all will gain. If the economy grows as projected, the higher state share in central taxes will translate into more resources for development. The major task will be restructuring of centrally sponsored schemes, to which both the PM and CMs have declared their commitment to. The rigid CSS will have to undergo changes for states to utilise them effectively. Quick decisions on how this is to be effected are needed. This, and Panchayat-led development, will lead to integrated growth, with the states acting in unison.

By  KM Chandrasekhar, Former cabinet secretary

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