 "Recommendations regarding devolution and revenue deficit grants are bound to disrupt existing plan transfers: Abhijit Sen")
The report of the 14th Finance Commission (FFC) included a dissent note by part-time member Abhijit Sen. A member of the erstwhile Planning Commission, he spoke to Arup Roychoudhury about his dissent. Edited excerpts:
What are your biggest concerns with the recommendations? Why have you suggested that the States’ share of net Union taxes be kept at 38 per cent for now?
The recommendations regarding devolution to states have already been accepted by the government. Once the states’ share of net Union taxes increases to 42 per cent, that immediately means 10 per cent less proceeds for the Centre. The recommendations regarding devolution and revenue deficit grants are bound to disrupt existing plan transfers.
There needs to be further discussion on this and the Centre and states’ have to get themselves prepared before the new devolution comes into force. Without adequate preparation, a change of this magnitude is too big and cannot be absorbed by either Centre or state.
To accommodate states’ needs in the short term, would the Centre have to raise overall spending? How will this affect its fiscal space and ability to stick to FRBM (the fiscal balance law)?
To counter the fall in reduced share of Union taxes, the government will need to cut plan spending, including centrally sponsored schemes (CSS). However, as against recommendations of delinking 30 CSS, the Centre has decided to do so for only eight. It will, thus, likely spend on all the major CSS. Although we will have to wait for the Budget to get a sense of the numbers, it is apparent there will be a problem and the Centre will have to stretch its resources, especially if there are items under Plan spending which might continue.
You have raised concern that spending on items like the Backward Region Grants Fund and Normal Central Assistance will be wound up. How will that affect allocation to states?
If these grants are ended, some of the smaller states might get less money under the new devolution regime. If NCA and the Gadgil-Mukherjee formula are discontinued, Uttarakhand and Tripura could receive less money. If BRGF is wound up, Odisha and Bihar will be allocated lesser amounts, as they are not even included in the list of states deserving grant-in-aid for a revenue deficit.
What are your biggest concerns with the recommendations? Why have you suggested that the States’ share of net Union taxes be kept at 38 per cent for now?
The recommendations regarding devolution to states have already been accepted by the government. Once the states’ share of net Union taxes increases to 42 per cent, that immediately means 10 per cent less proceeds for the Centre. The recommendations regarding devolution and revenue deficit grants are bound to disrupt existing plan transfers.
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Any cut in Plan allocation to states will have to be allocated across the various schemes and block grants at very short notice. Meanwhile, states generally assume any FC awards will leave plan flows from the Centre relatively unaffected. Some have made their budgets or are in the process of preparing one, based on that assumption. This will make their revenue calculations moot and test their capability to reallocate.
There needs to be further discussion on this and the Centre and states’ have to get themselves prepared before the new devolution comes into force. Without adequate preparation, a change of this magnitude is too big and cannot be absorbed by either Centre or state.
To accommodate states’ needs in the short term, would the Centre have to raise overall spending? How will this affect its fiscal space and ability to stick to FRBM (the fiscal balance law)?
To counter the fall in reduced share of Union taxes, the government will need to cut plan spending, including centrally sponsored schemes (CSS). However, as against recommendations of delinking 30 CSS, the Centre has decided to do so for only eight. It will, thus, likely spend on all the major CSS. Although we will have to wait for the Budget to get a sense of the numbers, it is apparent there will be a problem and the Centre will have to stretch its resources, especially if there are items under Plan spending which might continue.
You have raised concern that spending on items like the Backward Region Grants Fund and Normal Central Assistance will be wound up. How will that affect allocation to states?
If these grants are ended, some of the smaller states might get less money under the new devolution regime. If NCA and the Gadgil-Mukherjee formula are discontinued, Uttarakhand and Tripura could receive less money. If BRGF is wound up, Odisha and Bihar will be allocated lesser amounts, as they are not even included in the list of states deserving grant-in-aid for a revenue deficit.