The Centre will take a hit of Rs 26,000 crore in 2005-06, which is roughly 1 per cent of the gross domestic product, by implementing the recommendations of the Twelfth Finance Commission. | |
However, Expenditure Secretary D Swarup said the finance ministry was likely to come up with steps in the Budget to absorb the higher outgo and yet lower fiscal deficit to the limits set out in the Fiscal Responsibility and Budget Management Act.
How it stacks up
Centre's annual loss on Twelfth Finance Commission's recommendations | | Head | (in Rs cr) | | Higher share of states in taxes and duties | 4,000 | | Increase in grants to states | 15,000 | | Lower interest rate on loans | 4,000 | | Rescheduling of loans | 3,000 | | Source: Finance ministry |
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| "You will have to wait until the Budget. We have factored in the recommendations. We had to do a balancing act but the target will be met," Swarup told reporters at a press conference. |
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| He also said the government hoped to reduce its borrowings and the fiscal deficit by around Rs 12,000-14,000 crore as the commission had also suggested that the states should borrow directly from the market instead of the Centre routing the borrowings. |
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| Swarup said the amount of overall transfers to states had been set at 38 per cent of the central gross revenue receipts. The finance panel, in its recommendations regarding inter-state allocations, had also modified the Eleventh Finance Commission's criteria for devolution and relative weights assigned to different factors. Of the six factors used by the last commission, the present panel had done away with the index of infrastructure as a criterion, Swarup said. |
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| In addition, the weight of population has been increased to 25 per cent from 10 per cent under the last finance panel, the weight of tax effort has been increased to 7.5 per cent from 5 per cent, geographical area to 10 per cent from 7.5 per cent and income distance or poverty criterion has been reduced to 50 per cent from 62.5 per cent, while fiscal discipline has been maintained at 7.5 per cent. |
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| The outgo to states on account of duties and taxes will be Rs 613,112 crore compared with Rs 3,76,318 crore under the last commission. The grants to states will also increase to Rs 142,640 crore against Rs 58,588 crore. |
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| The commission has also recommended that the Centre can share the profit petroleum from the New Exploration Licensing Policy areas with states from where the mineral oil and natural gas are produced on a 50:50 basis. |
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| So far, 100 per cent of these proceeds totalling around Rs 2000 crore per year accrue to the Centre. |
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| The medium-term fiscal responsibility programme under the EFC, which provided states showing improvement in fiscal parametre access to an incentive fund, is being done away with in the present commission. |
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| This is being replaced with a debt relief scheme for the next five years. Swarup however clarified the Rs 10,125 crore corpus of the fund would not lapse but would be disbursed to states as per the recommendations of the EFC. |
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| The TFC had suggested debt relief by rescheduling all outstanding central loans to states totalling Rs 128,795 crore for a period of 20 years at an interest rate of 7.5 per cent against 9 per cent at present. |
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| The debt relief during the award period for all states put together works out to Rs 21,276 crore in interest payments and Rs 11,929 crore in repayments. Swarup said the loss to the centre in terms of reduced interest receipts would be to the tune of Rs 3,000-4,000 crore per year. |
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| The debt relief would, however, be conditional to states enacting a fiscal responsibility law. So far five states "" Karnataka, Kerala, Tamil Nadu, Punjab and Uttar Pradesh "" have enacted FRBM and Maharashtra has introduced a legislation, Swarup said. |
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