The centre has accepted the recommendations of the 14th Finance Commission, thereby paving the way for devolution of an additional Rs1,78,000 crore out of the centre's net tax receipts to states during the next fiscal year (2015-16).
In its Action Taken Report on the recommendations of the 14th Finance Commission, the central government said it has decided to devolve a much higher share of 42 per cent of the Union's tax receipts to the states, a 10-per cent increase from the 32 per cent share in 2014-15.
Finance minister Arun Jaitley tabled the Finance Commission's report in Parliament today.
''As against a total devolution of Rs3,48,000 crore approximately in 2014-15, the total devolution to the States in 2015-16 will be Rs5,26,000 crore approximately, a year-on-year increase of Rs1,78,000 crore approximately. The higher tax devolution will allow states greater autonomy in financing and designing schemes as per their needs and requirements,'' the report said.
The Commission has assessed the revenue and expenditure of the states for 2015-20 and has projected the deficit for each state after taking into account share of each state in central taxes. It has recommended a grant of over Rs1,94,000 crore to meet the deficit of 11 states.
For local bodies, the Commission has suggested basic grant of over Rs1.80 lakh crore and performance grant of over Rs20,000 crore. For municipalities, the basic grant would be around Rs 70,000 crore and performance grant would be around Rs17,500 crore.
The Finance Commission is constituted by the President under a constitutional provision and its recommendations are binding on the government. It recommendations are implemented through distribution of central taxes and duties along with grants-in-aid to states and through sharing of profit petroleum, debt relief and central assistance.
Prime minister Narendra Modi has written to chief ministers of all states, informing them of the government`s decision to wholeheartedly accept the recommendations of the 14th Finance Commission.
''Our government has decided to devolve maximum money to states and allow them the required freedom to plan the course of states' development,'' he wrote.
In his letter to state chief ministers, Modi said he could better understand the position of state governments since he himself was a chief minister earlier. In fact, he said, since the government came to power he has been working to strengthen the federal polity and promote cooperative federalism.
Also, he said, considering the diversity of the country, real and functional federal governance is the only vehicle to achieve this objective quickly and holistically.
''I sincerely believe that strong states are the foundation of a strong India. Even as chief minister, I had been saying that the progress of the country depends on the progress of states. This government is, therefore, committed to the idea of empowering states in all possible ways.
''We also believe that states should be allowed to chalk out their programmes and schemes with greater financial strength and autonomy, while observing financial prudence and discipline. We are clear that without this, local development needs cannot be met and marginalised communities and backward regions cannot be brought into the mainstream,'' he wrote.