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@Nuralain : So, horizontal devolution is nothing but allocation from the divisible pool on a few variables like forest cover, change in population and the erstwhile fiscal discipline. I should have understood this but I'm really fried right now.
And in the table 10.3 of the FFC document you've linked, there are two columns namely, ' Due to change in Due to change Divisible pool' and 'Due to change in Share', if it isn't too much trouble, can you please elucidate them?
A little off-tangent from the topic, in the link http://indiabudget.nic.in/es2014-15/echapvol1-10.pdf it is given that, as increase from 32% to 42% for states would throw some considerable pressure on fiscal policy pursued by the Central government a proportional reduction in Central Assistance to States would be required.
What I don't understand is, if a proportional reduction takes place in Central Assistance to States then is the net amount transferred to states remain unchanged?
Bihar the biggest looser: The new devolution formula - 42% of taxes being transferred to states (from earlier 32%). Obviously then now the center would have lesser money to spend, so it will cut down on expenditure. But from where? It will cut down on central schemes (as of now 36 such schemes are being talked of to be scrap) and backward state grant fund will be defunct.. Now a poor state like Bihar that used to benefit from central schemes and backward grant fund will lose the most and the loss would not get offset by larger devolution... So Bihar would lose... on the contrary, rich states would benefit more... (dont include Jharkhand, Chhatisgrah etc as poor states as they have resources and industry so tax collection is higher) Simply put, all tax collection whether spent by center or by state was going to benefit citizen ultimately... With center's role diminished, planning commission gone, poor states would have to take care of themselves as they can no longer rely on central schemes like MNREGA or NHM etc...
Benefits - More role of state in development process which is good - as they know the problems better, they should have independence in devising the solutions in their own unique ways that suits the local conditions...
In the budget, Jaitley made a commitment to give special assistance to Bihar and Assam to support this loss...
Why such increase.? the large jump ie 32 to 42 is due the fact that now the fund which was routed through pc will be given in the divisible pool. It has enhanced the size of divisible pool. Why some states loose? Due to The new formula as mentioned by friends has changed the weightage..forest cover better fiscal discipline etc are going to affect.
Another factor: The panel has assigned 7.5 per cent weight to forest cover for inter-se determination of the shares of taxes to the states, while population carries 17.5 per cent weight, demographic change 10, income distance 50 and area 15 per cent weight. This means - Losers - Andhra Pradesh (including Telangana), Assam, Bihar, Himachal Pradesh, Odisha, Rajasthan, Tamil Nadu, Uttar Pradesh and Uttarakhand Other states would gain....
Politicians cannot protest much, as from the face value it looks as if all states would get higher funds... Though in reality, with same amount of money, if some states gain, others have to lose- zero sum game actually...
Divisible pool which includes all central taxes excluding surcharges and cess which the Centre is constitutionally mandated to share with the States. That as per FFC is now 32-->42 %.
Also excludes the cost of tax collection (minor point but UPSC waley prelims mein pooch saktey hain )
yes..but now pc gone.center will only keep it's key schemes and trim down others. also,major issues under planning like infrastructure will be taken up center.. states will be free to formulate plans as per their typical needs
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Comments
And in the table 10.3 of the FFC document you've linked, there are two columns namely, ' Due to change in Due to change Divisible pool' and 'Due to change in Share', if it isn't too much trouble, can you please elucidate them?
A little off-tangent from the topic, in the link http://indiabudget.nic.in/es2014-15/echapvol1-10.pdf it is given that, as increase from 32% to 42% for states would throw some considerable pressure on fiscal policy pursued by the Central government a proportional reduction in Central Assistance to States would be required.
What I don't understand is, if a proportional reduction takes place in Central Assistance to States then is the net amount transferred to states remain unchanged?
The new devolution formula - 42% of taxes being transferred to states (from earlier 32%). Obviously then now the center would have lesser money to spend, so it will cut down on expenditure. But from where?
It will cut down on central schemes (as of now 36 such schemes are being talked of to be scrap) and backward state grant fund will be defunct..
Now a poor state like Bihar that used to benefit from central schemes and backward grant fund will lose the most and the loss would not get offset by larger devolution... So Bihar would lose... on the contrary, rich states would benefit more... (dont include Jharkhand, Chhatisgrah etc as poor states as they have resources and industry so tax collection is higher)
Simply put, all tax collection whether spent by center or by state was going to benefit citizen ultimately... With center's role diminished, planning commission gone, poor states would have to take care of themselves as they can no longer rely on central schemes like MNREGA or NHM etc...
Benefits - More role of state in development process which is good - as they know the problems better, they should have independence in devising the solutions in their own unique ways that suits the local conditions...
In the budget, Jaitley made a commitment to give special assistance to Bihar and Assam to support this loss...
the large jump ie 32 to 42 is due the fact that now the fund which was routed through pc will be given in the divisible pool. It has enhanced the size of divisible pool.
Why some states loose?
Due to The new formula as mentioned by friends has changed the weightage..forest cover better fiscal discipline etc are going to affect.
The panel has assigned 7.5 per cent weight to forest cover for inter-se determination of the shares of taxes to the states, while population carries 17.5 per cent weight, demographic change 10, income distance 50 and area 15 per cent weight.
This means -
Losers - Andhra Pradesh (including Telangana), Assam, Bihar, Himachal Pradesh, Odisha, Rajasthan, Tamil Nadu, Uttar Pradesh and Uttarakhand
Other states would gain....
Politicians cannot protest much, as from the face value it looks as if all states would get higher funds... Though in reality, with same amount of money, if some states gain, others have to lose- zero sum game actually...
also,major issues under planning like infrastructure will be taken up center..
states will be free to formulate plans as per their typical needs
the whole concept of central planning is gone...