New Delhi: In a major relief to state governments, the 13th Finance Commission (TFC) has removed the stringent conditions set by the previous finance commission on distributing grants-in-aid to state governments.
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These grants are an important component of the finance commission transfers to state governments, apart from the sharing of Union taxes.
TFC under its chairman Vijay Kelkar has reduced the grants to 18.03% of total transfers, amounting to Rs3.19 trillion. The previous commission had recommended grants of 18.9%.
The commission, in its report released Thursday, said the reduction was because of structural improvements in the fiscal positions of many states, including special category states.
TFC said its recommendations still have certain elements of conditionality, but “it has taken utmost care not to have intrusive conditionalities,”—so there’s no intrusion into the decision-making of state governments and local bodies.
It said its disbursement of grants are guided by objectives such as ensuring additionality of resources, improving transparency and accountability, and assisting in better monitoring of expenditure.
“The commission has done away with specific and administrative conditions on grants for education, health and maintenance of roads and bridges put by the previous finance commission,” said Pratap Ranjan Jena, senior economist and an expert on state finances at the National Institute of Public Finance and Policy. “It will provide lots of flexibility to state governments to spend the grants,” he added.
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The commission has recommended grants for non-plan revenue deficit, elementary education, environment-related issues, improving outcomes, maintenance of roads and bridges, local bodies, disaster relief, and implementation of the goods and services tax (GST). All such recommendations have been accepted by the Union government.
After taking into account their share in Union taxes and the potential revenues and expenditures for 2010-15, the commission has recommended a grant of Rs51,800 crore for eight states to meet projected deficits.
The commission has also recommended a performance incentive grant of Rs1,500 crore for three special category states— Assam, Sikkim and Uttarakhand —that have graduated out of non-plan revenue deficit.
Based on the requirement of providing elementary education for each state under the Sarva Shiksha Abhiyan, the commission has recommended to provide a grant of Rs24,068 crore, or 15% of the assessed need.
For environment-related issues, the commission has recommended grants of Rs15,000 crore under three equal heads—preservation of forests; promotion of renewable energy; the water sector.
States have been granted Rs14,446 crore over the award period under six heads to improve outcomes. An incentive grant of Rs5,000 crore for lowering infant mortality rates is to be released to states starting 2012-13, depending on the reduction achieved by the states with reference to the baseline level of 2009-10.
A grant of Rs2,989 crore for the Unique Identification (UID) programme is to be released based on the number of people covered.
A grant of Rs5,000 crore for improved delivery of justice has been recommended for Lok Adalats and legal aid, alternative dispute resolution centres, heritage court buildings, state judicial academy and training of judicial officers and public prosecutors.
TFC has also provided grants of Rs27,945 crore for various other state-specific needs.