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Finance minister Arun Jaitley while presenting his budget said that the “devolution to the states” would be of the order of `5.24 trillion in 2015-16 as against the devolution of `3.38 trillion as per revised estimates of 2014-15. Photo: Mint (Mint)
Finance minister Arun Jaitley while presenting his budget said that the “devolution to the states” would be of the order of `5.24 trillion in 2015-16 as against the devolution of `3.38 trillion as per revised estimates of 2014-15. Photo: Mint
(Mint)

Budget 2015 | Dynamics of centre-state relations

Even as the centre transferred an additional `1.86 trillion to states, calculations show the central govt will spend `60,000 crore less than it did on centrally sponsored schemes last year

New Delhi: Finance minister Arun Jaitley’s first full budget presented on Saturday bore the imprint of the fourteenth finance commission (FFC) recommendations, outlining the changed balance of centre-state relations through its financial statement.

Even as the central government transferred an additional 1.86 trillion to states in line with the increase in states’ share of net central taxes to 42% from 32%, back-of-the-envelope calculations show that the central government will be spending 60,000 crore less than it did on centrally sponsored schemes last year.

The government has identified more than 30 centrally sponsored schemes that should be transferred to the states which will receive a higher share of the divisible pool of taxes as per the recommendations of the FFC that were released last week. In the immediate term, however, the government has proposed delinking only eight of the centrally sponsored schemes from central support. These include the National e-Governance Plan, Backward Regions Grants Fund, and schemes for central assistance for states for developing export and tourist infrastructure.

For 13 other such schemes, the government has proposed a revised sharing pattern under which the states will share a higher fiscal responsibility for implementing the scheme. The central government’s combined spending on the schemes delinked and re-designed will be 71,000 crore less than in 2014-15. This figure also includes the money saved by delinking the Normal Central Assistance, Special Central Assistance, Special Plan Assistance and other additional central assistance.

On Tuesday, the government accepted the recommendations of the FFC that set a new fiscal compact for centre-state relations. It put in place a new paradigm for federal polity.

Jaitley while presenting his budget said that the “devolution to the states would be of the order of 5.24 trillion in 2015-16 as against the devolution of 3.38 trillion as per revised estimates of 2014-15.

Another 3.04 trillion would be transferred by way of grants and plan transfers. Thus, total transfer to the states will be about 62% of the total tax receipts of the country."

A statement laid before the Parliament on the budget said that while “the centre will continue to provide the enabling platform, it is for the states to take the lead in various developmental programmes based on local needs and aspirations."

Jaitley also said that the government’s adoption of the FFC recommendations showed its commitment to cooperative federalism—a point stressed by Prime Minister Narendra Modi.

The government believes that with greater devolution, states will have a greater resource pool at their command to undertake a number of development activities and prioritize them according to the states’ specific needs. Further, the states will also benefit from any buoyancy in tax collections.

On account of the revenue foregone and the thus reduced fiscal space, the finance minister re-calibrated his fiscal deficit target for the fiscal year 2015-16 to 3.9% as against 3.6% adopted in an earlier fiscal roadmap. Jaitley said that this was because he did not want to compromise on investment in the infrastructure sector and certain key social programmes.

“In spite of the consequential reduced fiscal space for the centre, the government has decided to continue supporting important national priorities such as agriculture, education, health, MGNREGA, and rural infrastructure including roads. Programmes targeted for the poor and the under-privileged, will be continued by us," Jaitley said.

The budget aimed at greater resource mobilisation through measures like disinvestment to meet the shortfall in revenues. It estimates 28,500 crore through “strategic" disinvestment.

The overall budget size for fiscal 2015-16, however, showed an increase of 5.7% over the revised estimates of fiscal year 2014-15.

Himanshu, associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi, expressed concern over the method of devolution of resources to states.

“Earlier, we had a planning commission to do this but now we have the NITI (National Institute for Transforming India) Aayog. So, how will this devolution happen? Through what mechanism will the money go to the states?" he asked.

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