Give states their fair share, protect their fiscal space, Pg10

Key Highlights:

• The 14th Finance Commission increased states' share in central taxes from 32% to 42%.
• States' share in central taxes increased from 15% to 19.2% during the 13th and 14th FC periods respectively.
• States' aggregate revenue receipts fell from 68.08% to 67.39% between the 14th and 15th FC periods.
• High-income states experienced a 0.38% fall in fiscal space when comparing the 15th FC to the 14th FC period.
• The 16th Finance Commission has submitted its report, and its recommendations are awaited.

Detailed Insights:

• Transfers from the Centre to states include tax devolution, Finance Commission grants, and non-FC grants.
• The increase in states' share during the 14th FC period reversed the relative shares of the Centre and states.
• The fall in states' receipts during the 15th FC was due to a reduction in tax devolution, partially offset by increases in FC and non-FC grants.
• High-income states' fiscal space was impacted by a fall in both their own revenue receipts and transfers from the Centre.
• Increased non-sharable cesses and surcharges by the central government have further reduced states' fiscal space.
• GST 2.0 reforms and the discontinuation of the GST compensation cess may adversely affect states' GST revenues.
• The 16th Finance Commission is expected to address concerns about the distance criterion in horizontal distribution.
• Increased tax receipts for both the Union and state governments are necessary to meet multiple challenges.

Key Concepts Involved:

• Tax Devolution: The transfer of a portion of central taxes to state governments.
• Finance Commission: A constitutional body that recommends principles governing the distribution of tax revenues between the Centre and States.
• Fiscal Space: The financial capacity of a government to fund its expenditures.
• GST Compensation Cess: A levy imposed to compensate states for revenue losses due to the implementation of the Goods and Services Tax (GST).