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New deal for states

Higher tax devolution and greater flexibility for states is welcome. Now rationalise Central schemes.

By: Express News Service |
Updated: March 4, 2015 3:58:58 am

The most game-changing proposal in this year’s Union budget, although it stems from the 14th Finance Commission’s (FC) recommendation, is the quantum jump, from 32 per cent to 42 per cent, in the share of Central tax revenues going to the states. This would translate into states receiving an additional Rs 1,41,742 crore in 2015-16 over the budget estimates for the current fiscal.

True, the higher tax devolution would be partially offset by reduced Central assistance for state plans, so that the net resource transfers will go up by only Rs 63,997 crore or 8.2 per cent. But that still works out to be a good deal, overall, for states, since they now get more money untied to schemes designed by the Centre. The freedom to spend funds on programmes and priorities set by them rather than New Delhi is something the states would value more than any increase in the size of the cake per se.

While greater flexibility in spending what are ultimately the taxpayers’, not the Centre’s, monies is welcome, certain concerns cannot be wished away. The most obvious one relates to the Centre divesting from programmes deserving of support, in the belief that the states would fill the void using their FC award bonanza.
Consider the Rashtriya Krishi Vikas Yojana (RKVY), till now a fully Centrally funded scheme that many recognise as having played a useful part in boosting India’s agricultural growth to 4.3 per cent a year during the 11th Five Year Plan (2007-12), from the earlier 2.5 per cent average. The budget has made it a partially state-funded scheme, with the Centre’s allocation slashed from Rs 9,954 crore to Rs 4,500 crore. Given that a primary motive behind introducing the RKVY was to reverse the states’ own declining investments in agriculture, it is a moot point whether they would rush to compensate for reduced Central funding for the scheme.

A more sensible approach might be to slash the total number of Central schemes, ensuring 100 per cent funding for the few that remain. There are many areas, from railways and highways to basic research, irrigation and even agriculture, where the Centre can make decisive interventions by drawing on expertise and resources that states may lack individually. Identifying these areas and designing schemes for them is what a body like the NITI Aayog can deliberate on. But at the end of the day, adequate funding commitment is fundamental to successful programmes.

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