States’ share of Central tax kitty to see huge jump

The FFC recommends that Centre should transfer 42 per cent of divisible pool to the states, including taxes and grants.

Walking the talk on its agenda of “cooperative federalism,” the Government on Tuesday said the share of States in the Centre’s net tax receipts would go up by Rs. 1,78,000 crore in 2015-2016. This will be 45 per cent more than the current financial year.

The higher devolution is in line with the recommendations of the 14th Finance Commission (FFC) headed by former RBI Governor Y.V. Reddy, accepted by the Union Cabinet in its meeting on Sunday, for a 42 per cent share to States in the divisible pool of Centre’s net taxes.

The previous Finance Commission had pegged the States’ share at 32 per cent.

The FFC has made a fundamental shift in the pattern of financing revenue expenditures. There is a shift from scheme and grant-based support from the Central Government to a devolution-based one.

The premise is that total transfers as a percentage of gross tax revenue remain the same, said a FFC source.

“It remains to be seen if the Centre will have the courage to reduce centrally sponsored schemes in line with the FFC report premiseý,” the source said.