Mixed reactions by states to finance commission report4 min read . Updated: 25 Feb 2015, 12:53 AM IST
Decentralization welcome but states not too forthcoming with comments on move to pass on more central tax revenue
States welcomed the central government’s decision to move away from “rigid centralization" and pass on more central tax revenue to them that would allow state governments flexibility to plan their own development agenda.
The central government accepted the 14th Finance Commission recommendations and tabled it in Parliament on Tuesday. Among other things, it recommended that the share of states in the centre’s tax revenue be increased to 42% from 32%, marking a fundamental shift in India’s federal relationship.
“We are moving away from rigid centralized planning, forcing a ‘one size fits all’ approach on states. States have always been voicing their opposition to this philosophy for years. Accepting these long standing concerns and long-felt lacunae in the country’s planning process, our government has decided to devolve maximum money to states and allow them the required freedom to plan the course of states’ development," Prime Minister Narendra Modi wrote to chief ministers about the finance commission recommendations and his “wholehearted" acceptance.
Both Modi and finance minister Arun Jaitley said on Tuesday that they believe that economic development must happen across states and by accepting the finance commission report they are giving freedom to states and creating an atmosphere of cooperative federalism.
“The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per needs and requirements," the report said.
States, cutting across political divides, welcomed the move but were not too forthcoming with their comments without reading the fine print and looking at the planned allocations during the upcoming annual budget.
I.S.N. Prasad, principal secretary (finance) of Congress-ruled Karnataka, said they believe that while giving more tax money to states, the central government may cut planned allocations. There are several central schemes, and states have to assess whether they can stop some of them immediately and assess the impact. “On day one, you cannot stop them, so each state has to take a call. But in the long run, this will give us more flexibility and freedom in terms of deployment of money," added Prasad.
He said his department will read the commission recommendations carefully and wait till 28 February, when the Union government presents the annual budget for 2015-16.
The Biju Janata Dal-run government in Odisha said it is “cautiously optimistic". A. K. Mishra, principal secretary (finance) in the state, termed this a welcome step. “With tax devolution, money will come to states without strings attached but we may not get more money in absolute terms."
“If you look from the states’ point of view, more central tax money will flow to states but the central government will reduce the planned allocations," he argued.
Mishra, however, said this will give money to states “without any strings attached and in a way help policymaking become more effective from the state capitals".
“Planning for Odisha sitting in Bhubaneswar will be more effective than sitting in Delhi. This flexibility will come now. Without thinking much about the central schemes we can devise our own schemes, keeping in mind priorities of the state," he explained, adding that the central government has spoken about reducing the number of central schemes and it must do it faster.
BJP ruled states like Haryana and Madhya Pradesh were more upbeat in their assessments. Haryana finance minister Captain Abhimanyu, while welcoming the development, said it will “provide financial autonomy to states. Of course, accountability is expected from us. Haryana has always been a fiscally responsible state. This will enable us to work better for our people."
“State governments know their priorities. These resources can be used as flexi-funds by the states as per their need. Previously it was 32% plus grants and now this has gone up to 42% plus grants under the plan scheme," said Aruna Sharma, additional chief secretary, Madhya Pradesh, adding the increase “will enable states to set and achieve their priorities".
N.C. Saxena, a member of the National Advisory Council of the previous United Progressive Alliance government, however, cautioned that though it looks like a quantum jump in resource allocation to states and an increase in their “discretion" in the deployment of funds, it may not turn out to be so.
He was apprehensive that the centre may reduce its own share in central schemes and ask states to give a bigger share for their implementation, which means no discretionary power in spending this extra money.
He said states need to improve capacity, accountability and governance, without which, more money may lead to misuse. “In the last nine months, the centre has not given any focus on this aspect and on how to improve delivery in states," he said.
In order to prevent misuse and leakages, it is preferable “if the central government sets outcome parameters like connectivity, rural infrastructure, hospitals, health parameters that will make the states perform, said Sharma of Madhya Pradesh. “With the kind of voters we have today, they are very aware of their rights and they will make the state perform. The share of the states in the plan schemes is to be watched, otherwise the increase of flexi-funds will get tied to meet the state share in plan schemes."
But in an action taken report on the finance commission recommendations, the government said: “It is expected that with this change in sharing pattern, concerns of states of asymmetry in fiscal federal relations will be addressed. It is hoped the states will use the extra fiscal space available to them to create productive capital assets, and that ‘Team India’ in NITI (Aayog) will provide the required guidance and monitoring."