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Mainstream, VOL LV No 23 New Delhi May 27, 2017

Have States received Adequate Resources to cope with Increased Responsibilities?

Saturday 27 May 2017, by Bharat Dogra

It is well known that following the recommen-dations of the 14th Finance Commission in the financial year 2015-16, the share of Central taxes to be shared with States was increased from 32 per cent to 42 per cent. At the same time the allocations for several important schemes in the social sector were cut quite substantially on the understanding that the State governments will be able to make up for these cuts on the basis of the additional resources allocated to them. However, questions were raised whether the increase in the resources of the State was adequate to take up the increased responsibilities.

Two years later these doubts still persist. If we look at the total Union resources transferred to the States as per cent of the gross domestic product (GDP), then this increased from 5.5 per cent (actual) in 2015-16 to 6.6 per cent (revised estimate) in 2016-17 and then actually declined to 6.4 per cent in 2017-18 (Budget estimate). Overall there has been some increase but this cannot be called a substantial increase.

A significant fact that needs to be considered in this context is that the financial resources raised in the form of various kinds of cess have been increasing at a fast pace. These various types of cess include the Swachh Bharat cess, the Krishi Kalyan cess, the education cess, the secondary and higher education cess, Clean Environment cess, cess on crude oil, bidi, sugar, automobiles, surcharge on pan masala and tobacco products etc. The total cess and surcharges increased from Rs 75,333 crores (actual) in 2015-16 to Rs 169,662 crores in the Budget estimate for this financial year 2017-18. This is a very substantial amount and a very notable increase.

The relevance of this from the point of view of sharing with States is that the resources collected in this way from cess, surcharge etc. are meant only for the Union Government and hence these remain outside the divisible resource pool. The higher the share contributed in this way, the lower will be the share of the resources to be shared with the States. This is one of the contributing factors which explains that the share of resources transferred to the States has not increased to the extent that it was expected.

The larger concern is that given this state of affairs the States may not have access to adequate resources to meet their increased responsibilities resulting from the striking cuts made in the allocations for important schemes in the social sector around the same time that the increase in the share of States to 42 per cent was announced on the basis of the recommendations of the 14th Finance Commission.

This is a matter of serious concern in the context of the several reports from time to time about the glaring shortages in the availability of funds for social sectors.

The author is a freelance journalist involved with several social movements and initiatives.

ISSN : 0542-1462 / RNI No. : 7064/62