By Dr. Gyan Pathak
The Centre has authorized the release of tax devolution of Rs 1,39,750 crore to states for June, and has tried to appear as if doing a great favour via a statement of the Union Ministry of Finance stating that this would “enable state governments to accelerate development and capital spending.” The reality is that with this fresh release, the total amount devolved for the financial year 2024-25 to states, till June 10, 2024, stands at only Rs 2,79,500 crore, as against the provision of Rs 12,19,783 crore as per the interim budget 2024-25. The devolution is obviously much slower for fast development and for meeting critical expenditure.
According to the recommendation of the final report of the 15thFinance Commission, 41 per cent of the sharable tax revenue should be devolved to the states. Before Jammu and Kashmir lost its statehood and was split into two Union Territories, the 14th Finance Commission had recommended devolution of 42 per cent of the central taxes to the states. However, the Union Government under PM Narendra Modi’s record of devolution has been dismal. Even the Interim Union Budget 2024-25 has projected to share only about 32 percent of central taxes with the states, which is 9 percent below the recommendation of the 15th Finance Commission. The Revised Estimate for 2023-24 too was only about 32 percent.
What then does the wish of the Finance Ministry of “faster development and capital spending” by states signify if the Modi government is devolving to the states 9 percent less than their rightful share as recommended by the Finance Commission in the central taxes, and that too devolved much slowly? Currently, this reduced devolution is done in 14 instalments. For faster development of the states their governments need faster devolution.
There are also several other issues which the states have been raising in the past. Non-BJP opposition-ruled states allege that they are not given Central funds in time, including their shares in taxes and the central share in the central and central-state joint programmes. This creates unnecessary hardship to the states.
After the announcement of the Centre regarding devolution of taxes to states on June 10, Congress general-secretary Jairam Ramesh slammed the Centre and the statement given by the Union Ministry of Finance calling the move “third-rate PR”. He said that the tax devolutions are “constitutional entitlements” determined by the Finance Commission of India.
“The Finance Ministry has just announced what is being billed as a major tax devolution to states. Undoubtedly this has been done at the behest of the one-third PM…Tax devolutions to states are no special favours being done by men of non-biological origin. This is third-rate PR trying to pass off what is legitimately due to states as some prasad being distributed,” Jairam Ramesh wrote in a post on X.
In the backdrop of the allegations of the opposition-ruled states that the Modi government has been delaying and even not releasing their rightful share in Central funds and taxes, it should be noted that in the latest devolution, Uttar Pradesh got the highest share with more than Rs 25,000 crore followed by Bihar with over Rs 14,000 crore and Madhya Pradesh with over Rs 10,000 crore.
The four opposition ruled states – Karnataka, Kerala, Tamil Nadu, and West Bengal – that have agitated in the recent past against the Modi government’s attitude towards them in releasing central funds and their share in taxes – will be getting Rs 5096, Rs 2690, Rs5700 and Rs 10513 crore respectively.
The statement of the Union Finance Ministry tried to show how benevolent the Modi government was. It said that Union Finance Minister Nirmala Sitharaman reviewed the prevailing economic and fiscal situation with the Finance Secretary T V Somanathan and Economic Affairs Secretary Ajay Seth. “It was decided that apart from the regular release of the devolution amount for June 2024, one additional instalment would be released. This cumulatively amounts to Rs 1,39,750 crore in the current month.”
States are indeed suffering from a fund crisis, but they need faster devolution of central taxes and central funds without any discrimination to opposition ruled states. Moreover, they need their rightful share as recommended by the Finance Commission, not 9 percent less at only 32 percent instead of 41 percent.
It was only on June 1 that the government had released data on GST collection. According to the data, the contribution of Uttar Pradesh in May 2024 in GST collection alone was Rs 9,091 crore, Bihar Rs1,521 crore, and Madhya Pradesh Rs 3,402 crore. These states are the top three in devolution of taxes in the country.
On the other hand, Karnataka’s contribution in GST revenue in May 2024 was Rs11,889 crore, Kerala’s Rs 2,594 crore, Tamil Nadu’s Rs 9,768 crore, and West Bengal’s Rs 5,377 crore.
Union Finance Minister Nirmala Sitharaman had said in her budget speech, “Many growth and development enabling reforms are needed in the states for realizing the vision of Viksit Bharat” as dreamed by PM Narendra Modi, but the devolution of central taxes trend to the states falls short of the requirement on the ground and the recommendation of the Finance Commission.
In her Interim Budget speech, Sitharaman had announced that the scheme of 50-year interest free loan for capital expenditure to states would be continued in 2024-25 with total outlay unchanged at Rs 1.3 trillion. However, this benevolence does not justify lesser than recommended and delayed devolution of states’ share in Central taxes. (IPA Service)
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