While presenting the 2015-16 Union Budget on February 28, the Finance Minister Mr. Arun Jaitley took a justifiable pride by noting that the NDA government devolved a hefty 42 per cent share of the divisible pool of taxes to States as suggested by the Fourteenth Finance Commission (FFC) recommendations in consonance with its commitment for cooperative federalism and build a robust Team India, taking on board all the States and Union Territories in the enchanting development journey. Hence, a 10 per cent “significant enhancement over the 32 per cent during the award period of the 13th FC meant approximately a year-on-year increase of Rs 1.78 lakh crore annually to the States in the next fiscal starting April 1, 2015, against Rs 3.48 lakh crore in 2014-15, the last year of the 13th FC period.

This is a pleasant goodwill gesture in terms of the largesse extended to States by the Union, given the cost it will exact on the national exchequer in keeping its inescapably larger remit of governance pan-India that entails no inconsiderable expenditure when the tax base remains constrained by self-imposed limits of the Union. Even so, this higher tax devolution bonanza has a flip side. Under Article 275 of the Constitution, grants-in-aid of revenues to States which used to be omnibus provisions that covered their non-plan schemes are now limited only to meet States revenue deficit (after accounting for the enhanced share in Central taxes for States), disaster relief and local bodies.

In assessing the revenues and expenditure of the States for the span 2015-20,the YVK Reddy-headed 14th FC has projected the revenue deficit of the order of Rs 1,94,821 crore of eleven States. These include, among others, Andhra Pradesh, Himachal Pradesh, Jammu & Kashmir, Manipur,, Mizoram, Nagaland, Tripura estimated to be ending up with revenue deficit for all the years of the award span and Assam, Kerala, Meghalaya and West Bengal for at least one of the years of the quinquennium. Even while accepting this gap-filling approach of weaker States “in principle”, Mr. Jaitley made it categorical that even this amount is subject to “revenue-raising and fiscal consolidation measures” to be made by the States concerned.

The message is loud and clear even to these fiscally-challenged states that they have to fend for themselves if they are serious enough to move up in the development ladder. Grants to fill up revenue deficit reek of policy-based and performance-related criteria and not a free lunch from the Union Cafeteria! This is no doubt preferable to the egregious of past practice when such grants were swayed by partisan approach with State after State losing faith in Federation’s devolution of funds in an impartial manner particularly in coalition era when predilections of the Union is alleged to have resulted in dereliction of its just and fairplay.

On local bodies, the third and crucial pillar of service delivery after the Union and the States to the denizens, the Commission plumped for spending the grants only on the basic services within the functions assigned to them under relevant legislations. For Gram Panchayats, it has recommended the basic grant of Rs.1, 80,262.96 crore and performance grant of Rs. 20,029.22 crore for all the States. For Municipalities the commission has recommended the basic grant of Rs. 69,715.03 crore and performance grant of Rs.17, 428.76 crore for all the States. While the Union Government has accepted the recommendations in keeping with the spirit of making over “funds, functions and functionaries” at the grassroots level, a slew of suggestions by the FFC to the State governments to strengthen State Finance Commissions (SFCs) will herald a new beginning in development journey if implemented by the States with finesse and foresight.

When property tax has been abolished in States like Haryana, Punjab and Rajasthan, the FFC has opted for a review and amplification of the extant rules to enable the levy of property tax and minimizing the grant of exemptions in a serious move to explore additional avenues for revenue. It has also favoured the levy of vacant land tax by peri-urban panchayats, besides sharing a part of land conversion charges by State governments with Municipalities and panchayats. For local governments the FFC has suggested raising the ceiling of professions tax from Rs.2,500 per annum to Rs.12,000 per annum, besides amending the Article 276 (2) of the Constitution to increase the limits on the imposition of professions tax by States. Rightly does the FFC favour rationalizing service charges by the urban local bodies in a way that “they are able to at least recover the operation and maintenance costs (OMCs) from the beneficiaries”. In framing its recommendations for grants to local bodies, the FFC has justifiably weighed such factors as enhancement of grants, minimal conditionalities, strengthening the role of SFCs and placing trust in local bodies. The time has now come to embrace these imperatives if the ordinary people are to get the value for the money they pay by way of multiplicity of taxes ranging from income to the plethora of services they get in their routine existence.

On disaster relief the Commission has recommended Rs. 61,219 crore as aggregate corpus of State Disaster Relief Fund (SDRF) for all States for the award period with the States contributing 10 per cent (Rs. 6,122 crore) to SDRF and the remaining 90 per cent coming from the Union Government.

The ball is now in the court of the States to draw up a judicious blend of revenue and expenditure plan to make the best use of higher devolution of funds fortuitously made available by the FFC which an understanding Union complied with in full faith. If the States persist with the policy folly of short-term gains, the best of time ahead would be lost to them. That is the reason why the Prime Minister Mr. Modi has contended that “resources are going to States to ensure that poverty is eliminated, jobs are created, houses, drinking water, roads, schools, hospitals and electricity are provided”. The list of unmet demands remains unconscionably long but the moot point is whether the States have the requisite institutional structures in place to provide these basic services, backed up by a talented team of dedicated public servants? The States have to hammer out bureaucratic reform plans before long if the benefits were to be conferred upon the aam aadmi. (IPA Service)