States received 16.7% more funds in FY16

Study conducted by NITI Aayog says only three saw a reduction in resources allocated

The NITI Aayog has rubbished claims that states were left with less funds in 2015-16 as compared to a year ago, despite transfer of a higher divisible tax pool following the 14th Finance Commission’s recommendations.

The Centre transferred 42 per cent of the divisible pool to states in 2015-16, an increase of 10 percentage points from 32 per cent in each of the previous five years. Many states have frequently complained that the increased devolution has been accompanied by more reduction in central transfers through grants, including those through centrally sponsored schemes (CSS). However, the NITI Aayog found this to be true only for  Sikkim, Tripura and Uttarakhand.

According to a study conducted by it, transfers to the states (net of recovery of loans and advances), comprising devolution of taxes, non-plan grants and loans, central assistance for states and UT plans (CACP), rose 21.7 per cent in 2015-16 (revised Estimates) compared to actual transfers in the previous year. Net resources transferred to states stood at Rs 8.2 lakh crore in 2015-16 (RE) against Rs 6.7 lakh crore in 2014-15. However, actual transfer to states and not RE turned to be a bit less at Rs 7.7 lakh crore in 2015-16. This meant a 16.7 per cent increase in 2015-16 over that in the previous year.

“However, it was still substantial, especially when we recognise that the increase in the total central expenditures (Revised Estimate) in 2015-16 over that in 2014-15 was only 7.3 per cent,” it said. It said the Centre faced a squeeze on expenditures because of the need for fiscal discipline combined with slow revenues resulting from the slow growth in nominal gross domestic product (GDP).

However, the actual increase has been unevenly distributed across states. The five big gainers that saw their total transfers rise around 30 per cent in 2015-16 over that in 2014-15 were Arunachal Pradesh, Goa, Himachal Pradesh, Kerala and West Bengal.  Chhattisgarh, Jharkhand, Madhya Pradesh and Odisha experienced an increase of between 20 and 30 per cent.  

At the other extreme, Sikkim, Tripura and Uttarakhand saw their transfers decline. Among these states, Sikkim lost as much as 26.8 per cent and Uttarakhand 12.9 per cent despite gaining 113 per cent and 29.5 per cent, respectively, in devolution. Tripura received 3.9 per cent less over this period, despite 73.9 per cent higher devolution.

A state’s total revenue receipts (TRR) include its own-tax revenue, non-tax revenue, its share in the central divisible pool and grants from the Centre, including those through CSS.

TRR in 21 states rose as a per cent of their gross state domestic product (GSDP), while it fell in the rest. Major states exhibiting declines in the ratio are Gujarat, Karnataka and Tamil Nadu. In each case, grants from the Centre and their own tax revenues declined, and, in the case of Gujarat and Tamil Nadu, own non-tax revenue also registered a decline.

In the five northeastern states, the major source of the decline has been central grants. TRR in Gujarat fell to 16.4 per cent of GSDP in 2015-16 compared to 17.2 per cent in 2014-15. It was marginally lower in Tamil Nadu and Karnataka in 2014-15 compared to that in 2013-14. Karnataka’s TRR was 11.3 per cent of GSDP in 2015-16 compared to 11.5 per cent in 2014-15, while it was 11.2 per cent against 11.4 per cent in case of Tamil Nadu.

After the FFC recommendations, the Centre had delinked eight schemes, including Backward Regions Grant Fund and National Mission for Food Processing, from its support, while changing the funding pattern of 24 others, including National Health Mission, Integrated Child Development Service in 2015-16.

However, 31 schemes, including the Mahatma Gandhi National Rural Employment Guarantee Scheme, were retained to be supported fully by the Centre.   Later, the government decided to reduce the number of CSS from about 60 to 27, following the recommendations of the Shivraj Singh Chouhan Committee.