Chief Minister K. Chandrasekhar Rao has urged the 15th Finance Commission to play a role in promoting cooperative fiscal federalism and increase the tax devolution to 50% of the divisible pool of Central taxes.
Mr. Chandrasekhar Rao spoke in a meeting with the Finance Commission headed by its Chairman N. K. Singh and its members at Jubilee Hall here Tuesday and said higher tax devolution could be easily accommodated by the Centre by reducing its expenditure on State subjects. This would make the States fiscally stronger, he said.
The Centre’s expenditure on State subjects had increased from an average of 14% of its total expenditure to 20%. The expenditure on subjects in the Concurrent List increased from 13% to 17% between 2002-05 and 2005-11. Thus it was evident that the Centre has excess fiscal space which could be shared with States through higher tax devolution, he explained.
The GST subsumed around 50% of States’ own tax revenue and 31% of gross tax revenue of Centre. As the States sacrificed their fiscal autonomy by giving up Sales Tax/VAT, the Commission should suitably compensate the States through higher tax devolution, he said.
State’s intitiatives
The State government has submitted an elaborate memorandum explaining first-of-its-kind initiatives taken by the State government since its formation five years ago. The State also presented its views on the terms of the reference of the Commission.
On State specific requirements, he sought more assistance for urban and rural local bodies which had gone up in number, grant of ₹12,722 crore for Mission Bhagiratha piped drinking water to every household and maintenance grant of ₹40,169 crore for lift irrigation projects like Kaleshwaram for the five year period of 2020-25.
State subjects
Another issue raised by the Chief Minister was the increasing intrusion of the Centre into State subjects by running Centrally sponsored schemes, shifting subjects from the State list to the Concurrent list and introducing new schemes in State subjects without any prior consultation with the States.
The Chief Minister said that the Centre had been levying various types of cess and surcharges on a permanent basis and it reduced the divisible pool of Central taxes, affecting the interests of States. At present the cess and surcharges accounted for 14.3% of the gross tax revenue of the Centre even after some of the cess were subsumed under GST.
Another serious concern was the proceeds of Road Cess and Clean Energy Cess were not being passed on to the States fully and it was pointed out by the Comptroller and Auditor General.
Referring to the 15th Finance Commission’s proposal on measurable performance-based incentives to States in a number of areas, Mr. Chandrasekhar Rao said that inclusion of implementation of flagship programmes of the Union government and exclusion of similar programmes of the State from the purview of incentive grants was a serious concern for the State. He urged the Commission to incentivise the States in the implementation of their own flagship programmes which were much better designed than the one-size-fits all programmes of the Centre.
Another performance-based incentive was related to expenditure incurred on populist measures. However, Mr. Rao said there were no objective criteria to categorise schemes into populist and non-populist — be it mid-day meal, employment guarantee or Rythu Bandhu — as the needs of States in the country were diverse and differ from State to State and even from district to district.
