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COGNIZANT OF CONSTRAINTS

Why in news?

he interim report of the 15th Finance Commission, tabled in Parliament on Saturday, has largely preserved the devolution mathematics of its predecessor, belying concerns of a sizeable cut in States’ share

What has the commission said?

The commission has recommended a one percentage point reduction in the vertical split of the divisible pool of tax revenues accruing to States to 41%

  • Former State’s notional share based on the parameters for horizontal devolution would have been about 0.85%, the commission has cited the security and other special needs of the two territories to enhance their aggregate share to 1%, which would be met by the Centre.
  • A crucial new parameter, demographic performance, has been added to the mix. Having been mandated to adopt the population data from the 2011 Census, the commission has incorporated the additional criterion to ensure that States that have done well on demographic management are not unfairly disadvantaged. 
  • Since the norm also indirectly evaluates performance on the human capital outcomes of education and health, it has been assigned a weight of 12.5%.
  • Among the States, with the exception of Tamil Nadu, all the other four southern States see a reduction in the recommended share of taxes for the year 2020-21.
  • Notably, the suggested devolution to Odisha and Uttar Pradesh have also shrunk in percentage terms
  • The commission has also been justifiably critical of the Union and State governments’ tendency to finance spending through off-budget borrowings and via parastatals
January 2023
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