Prime Minister Narendra Modi wrote to the Chief Ministers last Tuesday that his government had ‘wholeheartedly’ accepted the 14th Finance Commission’s recommendation to increase the States’ share of Central taxes to 42 per cent from 32 per cent in the spirit of ‘cooperative federalism.’ He wrote that the decision was taken despite the strain it would place on the Centre’s finances.
The Hindu has learnt that ahead of the finalisation of the commission’s recommendations, the Finance Ministry had submitted to it the Central government’s view that the devolution should not be increased and must be retained at 32 per cent.
Even after the commission’s report was received, the Department of Expenditure opposed the recommendation of higher share for States. Union Finance Minister Arun Jaitley, however, overruled the view in line with the Modi government’s policy of cooperative federalism, a highly placed source told The Hindu .
“The Finance Ministry, in its memorandum, has argued in favour of retaining the existing level of tax devolution in accordance with the recommendations made by FC-XIII [the 13th Finance Commission],” the commission report says.
The Ministry argued that any change in the States’ share from the 32 per cent level will prove to be detrimental to the Union government’s fiscal health as it was faced with the dual challenges of meeting its new fiscal consolidation road map and allocating more resources to the revival of growth.
Assam, Bihar and Tamil Nadu are among the big losers from the commission’s award because of the change in criteria for horizontal devolution across States. Madhya Pradesh is the biggest gainer.