Strengthening fiscal federalism and more fund allocation are the common issues that the Sixteenth Finance Commission of India members have heard as they travel across States doing groundwork before presenting their report.
In a quick chat with media after a meeting with the Telangana government team led by the Chief Minister A Revanth Reddy, Arvind Panagariya, Chairman of the Commission, said that the States visited so far were vocal in their concerns.
Pointing to the issues raised by Telangana, he said there was a point raised on what the division of resources is for States and what criteria should be adopted for doing the division. Panagariya highlighted the terms of reference of the Commission and said the focus is just on them.
According to the Terms of Reference for the Commission, the issues raised included the distribution between the Union and the States of the net proceeds of taxes and the allocation between the States of the respective shares of such proceeds.
The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues need to be outlined. It also has to consider the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.
When asked by businessline whether the Commission will consider tweaking the percentage of devolution in favour of the States, given the fact that the Centre reflects economic buoyancy, he said, “At this point, I don’t know what the Commission will decide.”
In his presentation, the State Chief Minister, Reddy, pointed to the heavy debt burden of the State, which stood at over ₹6.85 lakh crore as of the end of the last financial year. This included both budgeted and off-budget borrowings. Large loans borrowed in the last 10 years have now created a situation where a significant part of the State revenue is used just to repay debt.
“If we don’t manage our loans and interest payments, it will slow down our progress. We seek your support in helping us address this problem. Give us options to either restructure debt or kindly offer us additional assistance. I also strongly place my demand, and I speak for all States, on this increased allocation of central funds to States from 41 per cent to 50 per cent,” Reddy had said.
In fact, a day before, the main opposition in the State, BRS Party, had met the Commission and in their submission had also raised the issue of vertical distribution of Central Tax Revenue. “There are several imbalances in the revenue resources and responsibilities assigned to the Centre and the States,” the Party had submitted. They also pushed for increasing the States’ share in Central taxes from the current 41 per cent to 50 per cent.
The ruling party, as well as the opposition, also raised the issue of horizontal devolution to reduce income inequalities.
On being asked whether the Commission will suggest any road map for the utilisation of cess being collected by the Centre, he said, “There is not much the Commission can do, but yes, successive Commissions have made a mention of it.”