Hindustan Times (Delhi)

Finance panel formula squeezes Centre’s disposable revenues

- HT Correspond­ent letters@hindustant­imes.com

NEW DELHI: After the new Finance Commission’s recommenda­tions, finance minister Arun Jaitley will have to critically depend on non-tax receipts including disinvestm­ent and spectrum sale to garner additional resources for funding essential expenses.

Giving out tax concession­s would also call for delicate balancing as he has to keep the fiscal deficit under control.

The Narendra Modi-led government will transfer 42% share of Union taxes to states as recommende­d by the 14th Finance Commission report.

The government, while accepting the recommenda­tions, also admitted that the move would reduce its fiscal space.

“The consequenc­e of this much greater devolution to states is that fiscal space for the Centre will reduce in the same proportion,” the finance ministry said in a statement on Tuesday.

Prime Minister Narendra Modi had also said in his letter to state chief ministers: “This (the recommenda­tions) naturally leaves far less money with the central government. However, we have taken the recommenda­tions of the 14th Finance Commission in a positive spirit, as they strengthen your hand in designing and implementi­ng schemes according to your priorities and needs.”

The commission’s part-time member Abhijit Sen also said in his dissent note that the Centre’s net tax resources would shrink, signalling that a shift to meet states’ demand for larger untied transfers would require a fairly drastic alteration than the current arrangemen­ts.

Despite this, the Finance Commission said this would give adequate space to the Union government to keep its fiscal deficit at a recommende­d level of 3.6% for 2015-16, and subsequent­ly, to 3% in each of the four following years. However, the Centre might have to resort to other means to meet this target.

States will get `5.79 lakh crore of the Centre’s expected gross tax receipts of `15.67 lakh crore in 2015-16. The share of states will rise 51.55% compared to the 201415 estimate of `3.82 lakh crore.

The commission also said during the five-year period, the government would have `49.14 lakh crore left from the divisible pool and once it starts reducing the revenue deficit and eliminate it eventually, it would be healthy for the Centre to maintain a balance.

 ??  ?? Finance minister Arun Jaitley
Finance minister Arun Jaitley

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