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14th Finance CommissionIndian Polity M.Laxmikanth Ch.41Survey vol1, chapter1014th FC report Vol1

Dr. Y.V. ReddyChairman, Ex-RBI gov.1. Prof. Abhijit Sen (Part Time) Ex-Planning Commission member2. Ms. Sushama NathEx-Finance Secretary 3. Dr. M. Govinda RaoDirector, National Institute for Public Finance and Policy, New Delhi4. Dr. Sudipto MundleEx-Acting chief of National Statistical CommissionSecretaryAjay Narayan Jha, IASFormed2013, JanReport2014, Dec.Implementation1st April 2015 to 31st March 2021MembershipFC-28014th FC: report14th FC=> other matters referred by President

Total transfer to States

Total Transfer to States

This should be majorityTotal Transfer to States

Formula based, unconditional transferStates hv 2 contribute90:10, 75:25 etc.One-size fits allFC: Transfer to States

Stamp duty- cheque, prom-notes, insurance policy, share transferExcise duty on medical and toiletry prep. With alcohol / narcotics.Dont go to consolidated fund of India268- levied by union but collected & kept by States

Inter state commerceCentral sales tax (CST)Belongs to exporter state.Income Shown as -- in the Annual financial statement (budget)269: levied, collected by union but assigned to states

FC: share yesCorporation TaxIncome TaxExcise dutyService TaxCustoms dutySTTWealth TaxArt. 268 (Stamp + Deo)Art. 268-A: service tax-yes but not with J&KArt. 269 (CST / Ebay)Art. 270 (Cess)Art. 271 (Surcharges)FC Share: NoFC: Transfer to States

Tax devolution (All central taxes*)divisible Pool 12th Ranga: 30.5%13th Kelkar: 32%14th Reddy: 42%Cess, 270Surcharge, 271268, 269Service-J&KThree solutionsAmend Constitution to provide for compulsory sharing of cess and surcharges (difficult)Eliminate cess and surcharges from budget itself. (Jaitley did for most)Increase the share of states from other divisible taxes (14FC did by increasing from 32% to 42%)

14Since Cess and Surcharge not included

Tax devolution (All central taxes*)divisible Pool 12th Ranga: 30.5%13th Kelkar: 32%14th Reddy: 42%Horizontal?Cess, 270Surcharge, 271268, 269Service-J&KThree solutionsAmend Constitution to provide for compulsory sharing of cess and surcharges (difficult)Eliminate cess and surcharges from budget itself. (Jaitley did for most)Increase the share of states from other divisible taxes (14FC did by increasing from 32% to 42%)

16Horizontal distribution Both must be considered, else:Family planningOut-migration

Per capita GSDP compared to best states Such as Goa, Sikkim,HaryanaFurther distance=more money allottedprogressive horizontal devolutionTo check against income and regional imbalanceAlthough less progressive than previous FC (no addl. Special category)Fiscal capacityincome distanceHorizontalHorizontal distribution: 5 variables Opportunity costWeights accorded 13th14thPopulation (1971)2517.5Population (2011)010Horizontal distribution: 13th vs 14thWeights accorded 13th14thPopulation (1971)2517.5Population (2011)010Fiscal capacityIncome distance47.550Area1015Horizontal distribution: 13th vs 14thWeights accorded 13th14thPopulation (1971)2517.5Population (2011)010Fiscal capacityIncome distance47.550Area1015Forest Cover07.5Fiscal discipline17.50Horizontal distribution: 13th vs 14thIn horizontal tax devolution formula, the 14th FC, has included ___ as new variables?Census 1971Census-2011Forest coverFiscal disciplineOnly 1, 2 and 3Only 2 and 3 Only 1 and 3All of themFind correct answer?Only 2 and 3 new

Horizontal distribution1. Another table for service tax.Because J&K outside service tax regime.2. Vol1, ch10- how much gain/loss to your state? (interview)

Started with 5th FCGiven additional central grants and tax breaks.Special vs general category14th FC(*) from 5th FC14th FC no addl. SopsTop gainers- losersreasonsSpecial cat. Stateshilly and difficult terrainPopulation density lowtribal population highstrategic border locationEco. and infrastructure backwardnessstate finances unviableAssam*Nagaland*J&K*Arunanchal PradeshHimachal PradeshManipurMeghalayaMizoramSikkimTripuraUttarakhandSpecial categoryStates

Not 42%, give only 38%Else less money left for unions own plans and schemes.Union will be forced to cut downMNREGA, NFSA, RTE: cant cut.So, BRGF scraped. Bihar, Odisha etc. to suffer. PRI ministry budget down from 7k to 94Prof. Abhijit SenCriticism

RKVY (Krishi Vikas) budget halved.So, In absolute figures, Bihar & Odisha et al will get less before.Will their state Governments increase funds for backward region and agri. From own budget?

Prof. Abhijit SenCriticismTotal transfers from union to state

2014: 7.4 lakh crores2015: 7.6 lakh crores=hardly 4% increased.Total transfer: plan + non plan

Verticle Tax devolution just 38% and not 42%Continue Plan transfer as per Gadgil-Mukhrjee formulaUntil Niti Ayog picture is clear.wrote Dissent note, but Government accepted majority view of FC (42%)Prof. Abhijit Senrecommends

14th FC has delivered a strong push towards true federalism. Do you agree? Justify your stand.Pro: untied funds (42%)Anti: Sen- what about backward states? + faults in horizontal formulaMainsInterviewQuestion

Lack of moneyCant provide basic amnesties- water, waste Management, street lights etc.Cant hire large specialized staffIT-infrastructure, building repair etc. difficult

Problem areasLocal bodies

73rd Amendment 1992Form State finance commissions in a year, and thereafter @5 yearsBut not done at regular interval. Hard to sync. data for FC.SFC-report not all implemented.Some implemented but not in Timelimit.Problem areasSFCLocal bodies

14th FC: helping the local bodiesGrant in AidTotal 2.87 Lakh90% Population (2011) + 10% Area10th FC was first to recommendGrant in Aid2.87 Lakh cr.2 lakh Cr.87,000 cr90% Population (2011) + 10% Area14th FC: Grant in Aid for Local Bodies2.87 Lakh cr.2 lakh Cr.87,000 cr90% Population (2011) + 10% Area14th FC: helping the local bodies42

States should Share mining royaltyProperty tax and advertisement taxEntertainment tax: cable, net-caf, boat ridesProfessional Tax: 2500 => 12,000 (Art. 276 amendment needed)Kerala, TN local bodies get professional tax.

State Tax DevolutionPRI funding

Increase property tax as per inflation & DevelopmentAssessment every 4-5 years.Stringent action on evasion

Property TaxPRIArt. 285(1): union properties cant be taxed by state / local bodyPrevious FC recommended they should be taxed14th FC: at least compensate local bodies

Union propertiesPRI funding

Part 9 and 9-A dont apply to Assam, Meghalaya, Tripura, Manipur (AMTM)So, FC PRI-reforms not valid for themExpand 275(1) to fix this lacuna

North EastLocal bodies14th FC: helping the local bodies47

Large Corp. help them directly launch muni. bondsSmall municipalities: setup intermediary to help them issue bonds.SEBI norms: L2_P1_Capital Market.pptxMuni BondsPRIOther measures14th FC has taken extra precautions to ensure local bodies are not left at the mercy of state government. Elaborate.Even after a decade of 73rd & 74th Amendment, PRI bodies have not become a strong and vibrant unit of Government, due to lack of financial resources. Examine reasons and suggest remedies.Mains questions1. Skip 2. Attempt 3. Mark n Review

14th FC: Disaster ManagementExisting mechanismProblems and solutionsFunds: National Disaster Management Act 2005Not all states have formedNCCF merged in this

NCCF (calamity and contingency fund) merged into this (13th FC)Money from cess on custom-excise, but what after GST?Design new arrangement to get money in this fundGive tax exemption to private donorsEncourage CSR funding into thisProblem areasNDRFLimited* newly addedCyclonesdroughtsearthquakesfiresfloodstsunamisHailstormslandslidesavalanchescloud burstspest attackscold waves*Frost*Present listNDRF

Expand the list of "official calamities" for state-specific disasters:Heat wavescoastal erosionbamboo floweringSnakebitesMonkey and elephant attacksCalamity listNDRFFunds: National Disaster Management Act 2005New mechanism for fundingExpand the list

275(1): Union grants moneySo far: 75-25 (General) / 90-10 (Special)14th FC: 90-10 allHazard risk vulnerability index: More vulnerable states get bigger allotment (inflation, labor cost)Total Rs.61,000 SDRFs

14th FC recommendsSDRFFunds: National Disaster Management Act 2005New mechanism for fundingExpand the list90:10 ruleHazard vul. IndexMake non-compulsoryNational

State / District

MCQ: Who gives money in SDRF? How muchMCQ: How many funds provided in NDMA?MCQ: List of official calamities.Mains: Discuss in brief, the constrains in disaster response funding in India, and list the remedies suggested by 14FC.Questions on disasters1. Skip 2. Attempt 3. Mark n ReviewSector specific stopped, because large $$ announced (42%)Social sector spending:FC: outside purviewPC/Niti: state Government participation?Better use Inter-State councils (Art. 263)Identify sectors, design schemes, distribution-criteria+focus on NE + environment

Cooperative federalism14th FC

Punish states delaying electricity subsidies to companiesState electricity regulatory commissions Fund (SERC)Rail tariff authority: give statutory status (amend Rai act 89)Independent regulator for road sector

Public UtilityPricing14th FCWRA- water regulatory authorities for drinking, irrigation and industrialInstall water meters @customers expenseEnvironment helpedyesPublic UtilityPricing14th FC

Remaining 3 in Separate lectures on relevant topics