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LATEST NEWS UPDATES | States ask for more

States ask for more

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published Published on Feb 22, 2016   modified Modified on Feb 22, 2016
-The Hindu Business Line

If the finance panel’s award has been negated by cutbacks elsewhere, there’s a problem

A few days back, the States conveyed to the Centre that the new devolution arrangement — more under the Fourteenth Finance Commission award and less from the Union Budget — was not working well for them. The main burden of their argument was that the additional transfers — 1.78 lakh crore more this year under the Finance Commission — have been nullified by cutbacks in the Centre’s share of centrally sponsored schemes (CSSs), forcing the States to shell out extra to keep these going instead of pursuing programmes of their choice. According to them, there has been no increase in untied transfers as was initially expected (Odisha has complained of a net decline). If this is true, the devolution plan spelt out in the 2015-16 Budget seems to have gone off-track. A NITI Aayog report on the subject submitted last October explains that ‘Central assistance to State plans’, which comprises 85 per cent CSS transfers, has been cut in the 2015-16 Budget to 2.05 lakh crore from 3.38 lakh crore in the 2014-15 Budget. This leaves the States with a net gain of 40,000 crore. Yes, CSSs should be phased out; they represent an intrusion into the States’ domain. In 2015-16, the Centre’s share has been reduced in 33 schemes, while 16 will be implemented as wholly Central or State schemes. Seventeen ‘flagship’ schemes, such as MGNREGA, Sarva Shiksha Abhiyan and National Rural Health Mission, are expected to continue as before. Even here, a reduction in the Centre’s share (as opposed to outlay) should be worked out over time in consultation with the States. But for the Centre to be able reduce its share in CSSs, the States must be left with more rather than less funds from the Centre. If the States are right about being worse off now, it could be either because the funds cutback for the ongoing CSSs is more than has been spelt out in the Budget, or that new CSSs (requiring a matching contribution from States) have eaten into finance panel transfers. States should be consulted in advance before any new scheme that involves them is announced.

Most CSSs are poorly implemented because of their one-size-fits-all approach. States lack operational freedom to tailor them to local needs — a notable exception in this regard, however, is the Rashtriya Krishi Vikas Yojana, which has more room for the States built into it. CSSs suffer for shortage of staff, as Plan transfers cannot be used for recruiting permanent employees. All the more reason then for raising the untied component of funds transfer also from the Budget — this would allow the States to figure out their own Plan, non-Plan mix (the latter including salaries and interest payments).

If the issue of funds devolution festers, it could impact efforts to arrive at a consensus on the GST. To raise funds, States may press for keeping more items out of the GST. Therefore, the issue must be cleared up in the forthcoming Budget.

The Hindu, 21 February, 2016, http://www.thehindubusinessline.com/opinion/editorial/states-ask-for-more/article8264566.ece?homepage=true


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