Finance secretary: Present Government is fully committed to the principle of cooperative federalism both in the letter and spirit

Finance secretary: Present Government is fully committed to the principle of cooperative federalism both in the letter and spirit; More untied grants are now being given to the States; Allocation to States for local bodies increased from Rs. 87,519 crore under 13th Finance Commission to Rs.2.87 lakh crore under the 14th Finance Commission. 

The Finance Secretary, Shri Ratan P. Watal said that the present Government is fully committed to the principle of cooperative federalism both in the letter and spirit. The Finance Secretary was speaking in an interview for the official Youtube Channel of the Ministry of Finance in run-up to the Union Budget 2016-17.

In response to a question regarding cooperative federalism, Shri Watal said that the focus of the present Government is unique in the sense as it allows more fiscal and legislative space to the States. Talking about the fiscal aspect, the Finance Secretary highlighted that the Fourteenth Finance Commission (FFC) award has significantly raised the level of devolution of divisible resources to the States. He pointed-out that under the Thirteenth (13th) Finance Commission, only 32% of these resources were going to the States while the FFC recommended a huge increase of 10%, bringing the figure to 42% which the present Government has accepted with effect from 2015-16.Shri Watal further added that this has changed the planning exercise and the Centre’s interaction with the States for the better.

As per its commitment in the current Union Budget 2015-16, the Ministry of Finance had made a provision of Rs. 5.24 lakh crore under devolution of taxes to States as compared to the allocation of Rs.3.38 lakh crore in 2014-15(RE). So far, Rs. 411681.66 crore (78.56%) has been released to the States by way of tax devolution and as per convention, three more instalments will be released in March 2016 based on the tax collections till then.

In reply to another question about the individual scheme allocations, Finance Secretary Shri Watal said that it is not a correct perception that these are not in line with the scheme of devolution. He said that the States demanded that the Centrally Sponsored Schemes (CSS) were straight jacketed and that they should have more freedom and fiscal space. Presently, more untied grants are being given to the States. The Finance Commission brought about a compositional shift allowing States to set-up their own priorities, Shri Watal added.

The Finance Secretary pointed-out that at the same time, the 14th Finance Commission (FFC) also gave awards which increased the amount of money going to elected urban local bodies and rural local bodies. He added that under the 13th Finance Commission, Rs.87,519 crore has been allocated to States for these local bodies which has been increased to Rs.2.87 lakh crore under the 14th Finance Commission. This has to be intermediated through the State Government, but it has to go to elected bodies - to be used for amenities’ creation and pursuing priorities they determine.

Shri Watal further added that the other type of grants shifted to States were direct grants to revenue deficit States to help them out of revenue problems during the financial period.  He finally mentioned that the amount of money under State Disaster Relief Funds (SDRF) has been increased to address problems of disaster.

                Against allocation of Rs. 48906 crores for 11 revenue deficit States during 2015-16, Rs. 44,829.62 crore (91.66 %) has been released so far in eleven installments. Similarly, local bodies grants are estimated to be at Rs. 29987 crore in the year 2015-16 as against Rs. 22,399 crore released in 2014-15. In the current year 2015-16, Rs.21,227.50 crore (70.78 %) has been released to States for the duly constituted local bodies till date. Under SDRF, an allocation of Rs. 8512.50 crore has been made during 2015-16 and Rs. 8320.09 crore (97.73 %) has been released to the States.

Apart from the release under SDRF, to meet the requirements of increase in expenditure for relief due to natural calamities in the current year, the Central Government has released Rs. 8672.47 crore under NDRF against a Budget Estimate of Rs. 5690 crore. The additional expenditure was met by obtaining the supplementary grants.

In reply to another question, Shri Watal further said that keeping in view the recommendations of FFC, the Government had set-up a Committee through the NITI Aayog consisting of group of State Chief Ministers and headed by the Chief Minister of Madhya Pradesh (MP). This committee came-up with a sharing pattern based on a consensus which shows that cooperative federalism is fully working.

According to the Finance Secretary, the aforesaid Committee recommended that the funding pattern for schemes was shifted from 75:25 between Centre and States to 60:40 with priorities being set by State Governments. However, he added that no changes have been made in seven (7) core Centrally Sponsored Schemes (CSS). Further, for 14 special category States, including border States and North Eastern States, the 90:10 sharing pattern has Not been changed. The number of other Flagship Schemes have been reduced from 33 to 17 with a 60:40 funding pattern. In reference to schemes prioritized by the different State Governments, he said that these would be funded on a 50:50 funding pattern. He concluded that there has been a compositional shift but no scheme has been shortchanged.

The States are also receiving Central share towards State plan/ Centrally Sponsored Schemes (CSS) under different sectors and programmes. The Budget Estimates for 2015-16 provide Rs.2,04,110 crores for such transfers in the Union Budget of different Ministries/departments. The total expenditure up to January 2016 has been Rs.1,72,594 crore

             In the Budget Estimates of  2015-16, the total transfers to States is estimated to be at Rs. 8.36 lakh crore as against Rs. 6.77 lakh crore during 2014-15 (RE) and Rs. 6.36 lakh crore during 2013-14. The composition of statutory transfers has increased to over 73 % of the total transfers. In the true spirit of cooperative federalism, the discretionary transfers from the Central Government has gone down from 38% in 2013-14 to 24 % in 2015-16. There is thus greater predictability and certainty now in the quantum of funds flowing to the States apart from the overall increase in untied funds.

On being asked about the States’ fiscal management, Shri Watal said that the State finances are very well managed.  He went on to comment that this has been one of the reasons India has recorded a robust growth at the time of global turmoil. He said that there are 8-10 States which are growing at 12 % or more and are touted to be the growth drivers in the next 2-3 years.

When asked about the impact of these changes on the Central Government’s expenditure, Shri Watal replied that there has been a complete change in the quality of expenditure. It has improved and is now more focused. He said that there is no parking of money, its going where it is required and revenues are being tracked by the Government on a regular basis.

Shri Watal added that Capital expenditure has improved significantly. This has resulted in greater assets creation and has been driver for our nominal GDP growing at a much faster pace at 8.6% compared to the global scenario. He said that the nature of our expenditure and our macroeconomic fundamentals are very strong.

Commenting on the impact of the Central State sharing pattern on the States, he replied that change is always resisted. However, through the process initiated by the NITI Aayog, the State Chief Ministers have arrived at a shared consensus and the pattern has been welcomed.

When asked about the transition from Planning Commission to NITI Aayog, the Finance Secretary seemed optimistic. He specified that the coming year would be the last year of the 12th Five Year Plan (FYP). However, planning still remains vital and the role of NITI Aayog extends beyond the 12th FYP.

In response to a question on the planning needs, Shri Watal said that planning exercises have been held at the level of Prime Minister’s Office (PMO) where 50-60 Secretaries have been put into different groups. He himself was a part of one of the groups where the CEO of NITI Aayog also participated. The mandate of these groups was to prepare presentations to be made to officers of the different Ministries to chart the course of the future ideas.

On being asked about the implication of this devolution on the Union Budget, he accepted that this is a challenge. Resources are required to meet the legitimate demands of the States and that they are looking at how to address the issue.

The video interview of Finance Secretary Shri Ratan P Watal both in Hindi & English can be watched on the official YouTube channel of Ministry of Finance at the following link:

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