Fourteenth Finance Commission – Enhanced Devolution (Discussion)

Tags

14th finance commission, devolution, economy, fiscal federalism

Fiscal Federalism

1. Shared with the states:

Divisible Pool that is 42% of

• Tax revenues
• Net of cess, surcharge and cost of collection

2. Money that goes to state: around 62% of divisible pool via
   • Plan grants —> for centrally sponsored schemes
   • Grants by Finance commission ————-|Both around 32 to 35%
   • Tax devolution —————————————-|
3. With the increased share via Finance commission grants, states have more autonomy to use the money as they like. ~ Structural shift in transfers – conditional to unconditional
4. 14th Finance commission – unlike previous FCs, 14th FC took into account plan as well as non-plan expenditure of the states.
   • So, essentially the larger devolution also includes what was earlier some part of plan expenditure of states.
5. Central aid – Gadgil formula* will be financed by the enhanced devolution.
6. Forest cover – weightage of 6 – 7%; Forest cover – fiscal disability of state
7. Significant step-up to the local governments – from 89k crores to 3 lakh crore.