Professional Documents
Culture Documents
13th Finance Commission
13th Finance Commission
2010–2015
Volume I: Report
December 2009
CHAPTER 1
Summary of Recommendations
Finances of Union and States ii) The operational modalities are outlined
in paras 5.36 to 5.41.
1. The Ministry of Finance (MoF) should
ensure that the finance accounts fully reflect iii) The proposed agreement between the
the collections under cesses and surcharges Centre and states, with contingencies for
as per the relevant heads, so that there are changes, is in paras 5.49 to 5.51.
no inconsistencies between the amounts iv) The disincentives for non-compliance
released to states in any year and the are described in Para 5.52.
respective percentage shares in net central
v) The implementation schedule is
taxes recommended by the Finance
described in paras 5.57 to 5.59.
Commission for that year.
(Para 4.33) vi) The procedure for claiming
compensation is in Para 5.60.
2. The states need to address the problem of
(Para 5.48)
losses in the power sector in a time-bound
manner. 6. Any GST model adopted must be consistent
(Para 4.38) with all the elements of the Grand Bargain.
To incentivise implementation of the Grand
3. Initiatives should be taken to reduce the
Bargain, this Commission recommends
number of Centrally Sponsored Schemes
sanction of a grant of Rs. 50,000 crore. The
(CSS) and to restore the predominance of
grant would be used to meet the
formula-based plan transfers.
compensation claims of State Governments
(Para 4.56) for revenue losses on account of
implementation of GST between 2010-11 and
4. A calibrated exit strategy from the expansionary
2014-15, consistent with the Grand Bargain.
fiscal stance of 2008-09 and 2009-10 should
Unspent balances in this pool would be
be the main agenda of the Centre.
distributed amongst all the states, as per the
(Para 4.62) devolution formula, on 1 January 2015.
(paras 5.54 and 5.55)
Goods and Services Tax
7. The Empowered Committee of State Finance
5. Both the Centre and the states should
Ministers (EC) should be transformed into
conclude a ‘Grand Bargain’ to implement the
a statutory council. The compensation
Model GST. The Grand Bargain comprises
should be disbursed in quarterly instalments
six elements: on the basis of the recommendations by a
i) The design of the Model GST is three-member Compensation Committee
suggested in paras 5.25 to 5.35. comprising of the Secretary, Department of
1
Thirteenth Finance Commission
Revenue, Government of India; Secretary to ii) The states should use the flexibility
the EC and chaired by an eminent person provided by the Comptroller and
with experience in public finance. Auditor General (C&AG) to clear the
backlog of PSU accounts.
(Para 5.60)
(Para 7.95)
8. In the unlikely event that a consensus with
iii) All states need to draw up a roadmap for
regard to implementing all the elements of the
closure of non-working PSUs by March
Grand Bargain cannot be achieved and the
2011. Divestment and privatisation of
GST mechanism finally adopted is different
PSUs should be considered and actively
from the Model GST suggested by us, this
pursued.
Commission recommends that this amount
(paras 7.95 and 7.97)
of Rs. 50,000 crore shall not be disbursed.
(Para 5.62) iv) The Ministry of Corporate Affairs should
closely monitor the compliance of state
9. The states should take steps to reduce the
and central PSUs with their statutory
transit time of cargo vehicles crossing their
obligations.
borders by combining checkposts with
(Para 7.95)
adjoining states and adopting user-friendly
options like electronically issued passes for v) A task force may be constituted to design
transit traffic. a suitable strategy for disinvestment/
(Para 5.47) privatisation and oversee the process. A
Standing Committee on restructuring
Union Finances may be constituted under the
10. The policy regarding use of proceeds from chairmanship of the Chief Secretary to
disinvestment needs to be liberalised to also operationalise the recommendations of
include capital expenditure on critical the task force. An independent technical
infrastructure and the environment. secretariat may be set up to advise the
finance departments in states on
(Para 6.46) restructuring/disinvestment proposals.
11. Records of landholdings of PSUs need to be (Para 7.98)
properly maintained to ensure that this
scarce resource is put to productive use, or 14. With reference to the power sector:
made available for other public projects, or i) Reduction of Transmission and
else, sold. Distribution (T&D) losses should be
(Para 6.48) attempted through metering, feeder
separation, introduction of High Voltage
State Finances Distribution Systems (HVDS), metering
12. The practice of diverting plan assistance to of distribution transformers and strict
meet non-plan needs of special category anti-theft measures. Distribution
states should be discontinued. franchising and Electricity Services
(Para 7.79) Company (ESCO)-based structures
should be considered for efficiency
13. With reference to public sector improvement.
undertakings: (Para 7.114)
i) All states should endeavour to ensure ii) Unbundling needs to be carried out on
clearance of the accounts of all their priority basis and open access to
Public Sector Undertakings (PSUs).
transmission strengthened. Governance
(Para 7.95) should be improved through State Load
2
Chapter 1: Summary of Recommendations
Dispatch Centres (SLDCs) and this public account and the consolidated fund
function should eventually be made should be provided as a separate annex
autonomous. to the finance accounts of the states.
(Para 7.116) (Para7.131)
iii) Proper systems should be put in place iii) Public expenditure through creation of
to avoid delays in completion of hydro funds outside the consolidated fund of
projects. the states needs to be discouraged.
(Para 7.117) Expenditure through such funds and
from civil deposits should be brought
iv) Instead of putting up thermal power plants
under the audit jurisdiction of the C&AG.
in locations remote from sources of coal,
(paras 7.132 and 7.133)
states should consider joint ventures (JVs)
in or near the coal-rich states. iv) The following statements need to be
(Para 7.119) provided with the finance accounts of
states:
v) Case 1 bid process should be extensively
used to avoid vulnerability to high-cost a) Comprehensive data on all subsidies.
purchases during peak demand periods. (Para 7.135)
(Para 7.120) b) Consolidated information on the
vi) Regulatory institutions should be number of employees at each level,
strengthened through capacity building, along with the commitment on salary.
consumer education and tariff reforms This statement should also include
like Multi Year Tariff (MYT). Best information on employees and their
practices of corporate governance should salary where such expenditure is
be introduced in power utilities. shown as grants or booked under
other expenditure.
(Para 7.121)
(Para 7.136 & 7.137)
15. Migration to the New Pension Scheme needs
to be completed at the earliest. c) Details of maintenance expenditure.
16. States with large cash balances should make Sharing of Union Tax Revenues
efforts towards utilising these before
resorting to fresh borrowings. 18. The share of states in net proceeds of
shareable central taxes shall be 32 per cent
(Para 7.127) in each of the financial years from 2010-11
17. With reference to accounting reforms: to 2014-15. Under the Additional Duties of
Excise (Goods of Special Importance) Act,
i) The Government of India (GoI) should
1957, all goods were exempted from payment
ensure uniformity in the budgetary
of duty from 1 March 2006. Following this,
classification code across all states. The
the Centre had adjusted the basic duties of
list of appendices to the finance accounts
excise on sugar and tobacco products. In
of states also needs to be standardised.
view of these developments, the states’ share
(paras 7.129 and 7.134) in the net proceeds of shareable central taxes
ii) Details of contra-entries as well as the shall remain unchanged at 32 per cent, even
summary of transactions between the in the event of states levying sales tax (or
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Thirteenth Finance Commission
Value Added Tax (VAT)) on these Table 1.1: Inter se Shares of States
commodities.
States Share of all Share of
Shareable Taxes Service Tax
(paras 8.17 and 8.18) Excluding Service (per cent)
Tax(per cent)
19. In the event of notification of the 88 th
Andhra Pradesh 6.937 7.047
Amendment to the Constitution and
Arunachal Pradesh 0.328 0.332
enactment of any legislation following such Assam 3.628 3.685
notification, it should be ensured that the Bihar 10.917 11.089
revenue accruing to a state under the Chhattisgarh 2.470 2.509
legislation should not be less than the share Goa 0.266 0.270
Gujarat 3.041 3.089
that would accrue to it, had the entire
Haryana 1.048 1.064
service tax been part of the shareable pool Himachal Pradesh 0.781 0.793
of central taxes. Jammu & Kashmir 1.551 nil
Jharkhand 2.802 2.846
(Para 8.19) Karnataka 4.328 4.397
Kerala 2.341 2.378
20. The Central Government should review the Madhya Pradesh 7.120 7.232
levy of cesses and surcharges with a view to Maharashtra 5.199 5.281
reducing their share in its gross tax revenue. Manipur 0.451 0.458
Meghalaya 0.408 0.415
(Para 8.20) Mizoram 0.269 0.273
Nagaland 0.314 0.318
21. The indicative ceiling on overall transfers to Orissa 4.779 4.855
Punjab 1.389 1.411
states on the revenue account may be set at 39.5
Rajasthan 5.853 5.945
per cent of gross revenue receipts of the Centre.
Sikkim 0.239 0.243
Tamil Nadu 4.969 5.047
(Para 8.21)
Tripura 0.511 0.519
Uttar Pradesh 19.677 19.987
22. The share of each state in the net proceeds
Uttarakhand 1.120 1.138
of all shareable central taxes in each of the West Bengal 7.264 7.379
financial years from 2010-11 to 2014-15 shall All States 100.000 100.000
be as specified in Table 1.1:
less than 25 per cent of GDP, by 2014-15.
(paras 8.38 and 8.39)
(paras 9.29 and 9.69, Table 9.7)
Revised Roadmap for Fiscal 25. The Medium Term Fiscal Plan (MTFP)
Consolidation should be reformed and made a statement
of commitment rather than a statement of
23. The revenue deficit of the Centre needs to
intent. Tighter integration is required
be progressively reduced and eliminated,
between the multi-year framework provided
followed by emergence of a revenue surplus by MTFP and the annual budget exercise.
by 2014-15.
(paras 9.18 and 9.31) (Para 9.38)
24. A target of 68 per cent of GDP for the combined 26. The following disclosures should be made
debt of the Centre and states should be along with the annual Central Budget/MTFP:
achieved by 2014-15. The fiscal consolidation i) Detailed breakup of grants to states
path embodies steady reduction in the under the overall category of non-plan
augmented debt stock of the Centre to 45 per and plan grants.
cent of GDP by 2014-15, and of the states to (Para 9.41)
4
Chapter 1: Summary of Recommendations
5
Thirteenth Finance Commission
maintain it thereafter. Manipur, weak states that are unable to raise loans
Nagaland, Sikkim and Uttarakhand to from the market.
reduce their fiscal deficit to 3 per cent of
(Para 9.114)
GSDP by 2013-14.
41. For states that have not availed the benefit
(paras 9.79 and 9.81)
of consolidation under the Debt
iv) Jammu & Kashmir and Mizoram should Consolidation and Relief Facility (DCRF),
limit their fiscal deficit to 3 per cent of the facility, limited to consolidation and
GSDP by 2014-15. interest rate reduction, should be
(Para 9.80) extended, subject to enactment of the
34. States should amend/enact FRBM Acts to FRBM Act.
build in the fiscal reform path worked out. (Para 9.115)
State-specific grants recommended for a
42. The benefit of interest relief on NSSF and
state should be released upon compliance.
the write-off should be made available to
(Para 9.82) states only if they bring about the necessary
35. Independent review/monitoring mechanism amendments/enactments of FRBM.
under the FRBM Acts should be set up by (Para 9.116)
states.
Local Bodies
(Para 9.84)
43. Article 280 (3) (bb) & (c) of the Constitution
36. Borrowing limits for states to be worked out
should be amended such that the words ‘on
by MoF using the fiscal reform path, thus
the basis of the recommendations of the
acting as an enforcement mechanism for
Finance Commission of the State’ are
fiscal correction by states.
changed to ‘after taking into consideration
(Para 9.85) the recommendations of the Finance
37. Loans to states from National Small Savings Commission of the State’.
Fund (NSSF) contracted till 2006-07 and (Para 10.130)
outstanding at the end of 2009-10 to be reset
at 9 per cent rate of interest, subject to 44. Article 243(I) of the Constitution should be
conditions prescribed. amended to include the phrase ‘or earlier’
after the words ‘every fifth year’.
(Para 9.106)
(Para 10.125)
38. National Small Savings Scheme to be
reformed into a market-aligned scheme. 45. The quantum of local body grants should be
State Governments are also required to provided as per Table 10.4. The general basic
undertake relevant reforms at their level. grant as well as the special areas basic grant
should be allocated amongst states as
(paras 9.111 and 9.112) specified. The state-wise eligibility for these
39. Loans from GoI to states and administered grants is placed in annexes 10.15a and 10.15c.
by ministries/departments other than MoF, (Para 10.159)
outstanding as at the end of 2009-10, to be
written off, subject to conditions prescribed. 46. State Governments will be eligible for the
general performance grant and the special
(Para 9.114) areas performance grant only if they comply
40. A window for borrowing from the Central with the prescribed stipulations. These grants
Government needs to be available for fiscally will be disbursed in the manner specified. The
6
Chapter 1: Summary of Recommendations
state-wise eligibility for these grants is placed share a portion of this income with those
in annexes 10.15b and 10.15d. local bodies in whose jurisdiction such
(paras 10.161 to 10.164) income arises.
(Para 10.179)
47. The states should appropriately allocate a
portion of their share of the general basic 53. State Governments should ensure that the
grant and general performance grant, to the recommendations of State Finance
special areas in proportion to the population Commissions (SFCs) are implemented
of these areas. This allocation will be in without delay and that the Action Taken
addition to the special area basic grant and Report (ATR) is promptly placed before the
special area performance grant legislature.
recommended by us. (Para 10.129)
(Para 10.170)
54. SFCs should consider adopting the template
48. State Governments should appropriately suggested in Annex 10.5 as the basis for their
strengthen their local fund audit reports.
departments through capacity building as (Para 10.127)
well as personnel augmentation.
55. Bodies similar to the SFC should be set up
(Para 10.167) in states which are not covered by Part IX of
the Constitution.
49. The State Governments should incentivise
(Para 10.180)
revenue collection by local bodies through
methods such as mandating some or all local 56. Local bodies should consider implementing
taxes as obligatory at non-zero rates of levy, the identified best practices.
by deducting deemed own revenue collection (Para 10.79)
from transfer entitlements of local bodies,
57. A portion of the grants provided by us to
or through a system of matching grants.
urban local bodies be used to revamp the fire
(Para 10.173) services within their jurisdiction.
50. To buttress the accounting system, the (Para 10.172)
finance accounts should include a separate
58. Local Bodies should be associated with city
statement indicating head-wise details of
planning functions wherever other
actual expenditures under the same heads
development authorities are mandated this
as used in the budget for both Panchayati Raj
function. These authorities should also share
Institutions (PRIs) and Urban Local Bodies
their revenues with local bodies.
(ULBs). We recommend that these changes
be brought into effect from 31 March 2012. (Para 10.168)
7
Thirteenth Finance Commission
64. The total size of the SDRF has been worked Grants-in-aid to States
out as Rs. 33,581 crore, to be shared in the
ratio given above, with an additional grant NPRD and Performance Incentive
of Rs. 525 crore for capacity building.
71. Total non-plan revenue grant of Rs. 51,800
(paras 11.92 and 11.102) crore is recommended over the award period
for eight states (Table 12.4).
65. Assistance of Rs. 250 crore to be given to the
National Disaster Response Force to (Para 12.12)
maintain an inventory of items required for
72. A performance grant of Rs. 1500 crore is
immediate relief.
recommended for three special category states
(Para 11.103) who have graduated from a Non-plan Revenue
66. Provisions relating to the District Disaster Deficit (NPRD) situation.
Response Fund (DDRF) in the Disaster (Para 12.13)
Management (DM) Act may be reviewed and
setting up of these funds left to the discretion Elementary Education
of the individual states. 73. A grant of Rs. 24,068 crore is recommended
(Para 11.96) for elementary education over the award
67. Mitigation and reconstruction activities should period.
be kept out of the schemes funded through FC (Para 12.23)
grants and met out of overall development plan 74. The education grant will be an additionality
funds of the Centre and the states. to the normal expenditure of the states for
(Para 11.83) elementary education. The expenditure
8
Chapter 1: Summary of Recommendations
9
Thirteenth Finance Commission
86. To enhance the quality of statistical systems, ii) The phasing of the state-specific grants
we recommend a grant of Rs. 616 crore for given in Table 12.6 is only indicative;
State Governments at the rate of Rs. 1 crore states may communicate their required
for every district to fill in statistical phasing to the Central Government. The
infrastructure gaps in areas not addressed grant may be released in a maximum of
by the India Statistical Project (ISP). two instalments per year.
(Para 12.101) iii) Accounts shall be maintained and
87. A grant of Rs. 10 crore will be provided to each Utilisation Certificates (UCs)/
general category state and Rs. 5 crore to each Statements of Expenditure (SOEs)
provided as per General Finance Rules
special category state to set up an employees’
(GFR) 2005.
and pensioners’ data base. We also urge GoI
(Para 12.324)
to initiate a parallel effort for preparing a data
base for its own employees and pensioners.
Monitoring
(Para 12.108)
92. The High Level Monitoring Committee
Maintenance of Roads and Bridges headed by the Chief Secretary to review the
utilisation of grants and to take corrective
88. An amount of Rs. 19,930 crore has been measures, set up as per the recommendation
recommended as grant for maintenance of of FC-XII, should continue.
roads and bridges for four years (2011-12 to
2014-15) of our award period. (Para 12.326)
10
Chapter 1: Summary of Recommendations
Vijay L. Kelkar
Chairman
New Delhi
29, December 2009
I wish to record my deep appreciation of the outstanding support and cooperation provided
by all Members of the Commission. This report is a joint endeavour, with each Member
contributing immensely with their profound knowledge and deep professional commitment. I
also want to put on record the Commission’s appreciation of the services rendered by Shri Sumit
Bose, Secretary to the Commission. He has been a friend, philosopher and guide to this
Commission. The Commission greatly owes to him for its high efficiency and meticulous work.
He has been an outstanding leader of a talented team of professionals which assisted the
Commission.
Vijay L. Kelkar
Chairman
New Delhi
29, December 2009
11
CHAPTER 2
Introduction
2.1 The Thirteenth Finance Commission ii) the principles which should govern the
(FC-XIII) was constituted by the President under grants-in-aid of the revenues of the
Article 280 of the Constitution on 13 November States out of the Consolidated Fund of
2007 to make recommendations for the period India and the sums to be paid to the
2010-15. Dr. Vijay Kelkar was appointed the States which are in need of assistance
Chairman of the Commission. Dr. Indira by way of grants-in-aid of their
Rajaraman, Professor Emeritus, National Institute revenues under article 275 of the
of Public Finance & Policy (NIPFP), Constitution for purposes other than
Dr. Abusaleh Shariff, Chief Economist, National those specified in the provisos to clause
Council of Applied Economic Research (NCAER), (1) of that article; and
and Professor Atul Sarma, Former
iii) the measures needed to augment the
Vice-Chancellor, Rajiv Gandhi University (formerly
Consolidated Fund of a State to
Arunachal University) were appointed full time
supplement the resources of the
Members. Shri B.K. Chaturvedi, Member, Planning
Commission was appointed as a part-time Member. Panchayats and Municipalities in the
Shri Sumit Bose was appointed as Secretary to the State on the basis of the
Commission (Annex 2.1). Subsequently, the recommendations made by the Finance
President appointed Dr. Sanjiv Misra, Former Commission of the State.
Secretary (Expenditure), Ministry of Finance as 5. The Commission shall review the state of the
Member of the Commission in place of Dr. Abusaleh finances of the Union and the States,
Shariff, who was unable to join (Annex 2.2). keeping in view, in particular, the operation
of the States’ Debt Consolidation and Relief
Terms of Reference Facility 2005-2010 introduced by the
2.2 The Terms of Reference (ToR) of the Central Government on the basis of the
Commission included the following: recommendations of the Twelfth Finance
Commission, and suggest measures for
“... 4. The Commission shall make
maintaining a stable and sustainable fiscal
recommendations as to the following
environment consistent with equitable
matters, namely:-
growth.
i) the distribution between the Union
6. In making its recommendations, the
and the States of the net proceeds of
Commission shall have regard, among
taxes which are to be, or may be,
other considerations, to -
divided between them under Chapter
I Part XII of the Constitution and the (i) the resources of the Central
allocation between the States of the Government, for five years
respective shares of such proceeds; commencing on 1st April 2010, on
12
Chapter 2: Introduction
the basis of levels of taxation and (ix) the expenditure on the non-salary
non-tax revenues likely to be reached component of maintenance and
at the end of 2008-09; upkeep of capital assets and the non-
wage related maintenance
(ii) the demands on the resources of the
expenditure on plan schemes to be
Central Government, in particular,
completed by 31st March, 2010 and
on account of the projected Gross
the norms on the basis of which
Budgetary Support to the Central
specific amounts are recommended
and State Plan, expenditure on civil
for the maintenance of the capital
administration, defence, internal
assets and the manner of monitoring
and border security, debt-servicing
and other committed expenditure such expenditure;
and liabilities; (x) the need for ensuring the commercial
(iii) the resources of the State viability of irrigation projects,
Governments, for the five years power projects, departmental
commencing on 1st April 2010, on undertakings and public sector
the basis of levels of taxation and enterprises through various means,
non-tax revenues likely to be reached including levy of user charges and
at the end of 2008-09; adoption of measures to promote
efficiency.
(iv) the objective of not only balancing
the receipts and expenditure on 7. In making its recommendations on various
revenue account of all the States and matters, the Commission shall take the base
the Union, but also generating of population figures as of 1971, in all such
surpluses for capital investment; cases where population is a factor for
determination of devolution of taxes and
(v) the taxation efforts of the Central duties and grants-in-aid.
Government and each State
Government and the potential for 8. The Commission may review the present
additional resource mobilisation to arrangements as regards financing of
improve the tax-Gross Domestic Disaster Management with reference to the
Product ratio in the case of the Union National Calamity Contingency Fund and
and tax-Gross State Domestic the Calamity Relief Fund and the funds
Product ratio in the case of the envisaged in the Disaster Management Act,
States; 2005 (53 of 2005), and make appropriate
recommendations thereon.
(vi) the impact of the proposed
implementation of Goods and 9. The Commission shall indicate the basis on
Services Tax with effect from 1st which it has arrived at its findings and
April, 2010, including its impact on make available the estimates of receipts and
the country’s foreign trade; expenditure of the Union and each of the
States.”
(vii) the need to improve the quality of
public expenditure to obtain better 2.3 The following additional item was added to
outputs and outcomes; the terms of reference of the Commission vide
President’s Order published under S.O. No. 2107
(viii) the need to manage ecology,
dated 25 August 2008 (Annex 2.3).
environment and climate change
consistent with sustainable “8.A. Having regard to the need to bring the
development; liabilities of the Central Government on account
13
Thirteenth Finance Commission
of oil, food and fertilizer bonds into the fiscal routine house-keeping functions were outsourced
accounting, and the impact of various other so that expenditure was minimised.
obligations of the Central Government on the
2.7 Considering the importance of ensuring that
deficit targets, the Commission may review the
future Finance Commissions are able to commence
roadmap for fiscal adjustment and suggest a
their work as quickly as possible, it is necessary that
suitably revised roadmap with a view to
these problems, faced by successive past
maintaining the gains of fiscal consolidation
Commissions, are effectively resolved.
through 2010 to 2015.”
2.4 The Commission was initially required to Key Activities
submit its report by 31 October 2009 covering the 2.8 The Commission was delegated the powers
five-year period between 1 April 2010 and 31 March of a department of the Central Government (Annex
2015. The conduct of elections to the Fifteenth Lok 2.7). The Commission’s budget was assigned a
Sabha and certain State Legislative Assemblies in separate head of account. This enabled the
April-May 2009 warranted a postponement of visits Commission to function independently.
by the Commission to some states. The conduct of
elections also led to the delay in the presentation of 2.9 Our recommendations have been based on
the regular Budget of the Union as well as of some a detailed assessment of the financial position of
State Governments for the year 2009-10. the Central and the State Governments, as well as
Consequently, information from the Centre and substantial information and economic data
some of the states on their fiscal position and gathered through consultations, submissions and
projections for 2010-15 could not become available research studies. A public notice was issued in all
to the Commission till August 2009. In view of the leading newspapers of India in December 2007
above developments, the Commission was granted (Annex 2.8) inviting views/comments from all
an extension by the President till 31 January 2010 interested individuals, knowledgeable persons,
with the condition that its report be submitted by organisations and other sources on various issues
31 December 2009 (Annex 2.4). related to the terms of reference of the Commission.
The request for suggestions was also posted on the
Administrative Arrangements Commission’s website.
2.5 As has been the experience of previous 2.10 The Commission held its first meeting on 3
Commissions, this Commission also faced a number January 2008 after the Chairman and three
of teething problems relating to infrastructure Members had assumed charge. The fourth Member
availability, including office space and staff. These assumed office on 31 March 2008. In addition to
difficulties constrained its initial operational adopting the Rules of Procedure of the Commission
effectiveness. (Annex 2.9), the tasks before the Commission were
reviewed in this meeting. The Commission held 123
2.6 The Commission could initiate its
meetings on the dates indicated in Annex 2.10.
preliminary tasks only in January 2008 when it was
These meetings were held at HT House in the K.C.
able to acquire some temporary office space at
Neogy Room, which was designated the Committee
Jeevan Bharati Building, Connaught Place, New
Room of the Finance Commission and named after
Delhi. The Commission could finally move into its
Shri K.C. Neogy, the distinguished Chairman of the
regular office space at the Hindustan Times House
First Finance Commission. The list of meetings
only by May 2008. A special effort was made to get
excludes the meetings held with the State
Central and State Government officers on
Government representatives at state capitals during
deputation to the Commission. The process for
the visits by the Commission.
appointing suitable staff on deputation continued
till late 2008.The lists of sanctioned posts and 2.11 All the State Governments were requested
functionaries are given in annexes 2.5 and 2.6. The to submit their memoranda, along with detailed
14
Chapter 2: Introduction
information on their fiscal and financial Shillong. A list of participants is placed in Annex
performance in the prescribed proformae, by 1 May 2.11.
2008. An interactive online discussion with the
2.16 A meeting with Chairmen/Members of
State Finance Departments/State Finance
previous Finance Commissions was held on 2 May
Commission Cells was organised through
2008 at the India International Centre, New Delhi.
video-conferencing on 11 and 12 February 2008 to
A number of previous Chairmen and Members
enable them to seek clarifications on the
participated. This meeting provided very useful
information sought by the Finance Commission on
guidance to the Commission. A list of participants
the various topics. All states were provided the
is placed in Annex 2.12.
facility to upload the data directly on to the
Commission’s website. This ensured minimisation 2.17 Before undertaking visits to the states,
of data entry errors. meetings were held with the respective Accountants
General of each of the 28 states. This enabled the
2.12 Detailed information/data on assessment of
Commission to obtain an overview of the states’
the resources and expenditure of the Union
fiscal and financial position with reference to key
Government for the period 2002-03 to 2014-15 in
indicators including growth rates of Gross State
22 formats and on 43 issues/topics, as well as their
Domestic Product (GSDP), efficiency in
views on ToR of the Commission, were sought from
expenditure, physical and financial performance of
the Ministry of Finance vide letter dated 31 March
various sectors, financial health of Public Sector
2008 with a request to furnish the information by
Undertakings–particularly those related to
31 May 2008. These formats were also sent to 16
transport and power sectors–and the status of
ministries/departments of the Central Government
finalisation of accounts of the state-owned
for providing information related to their respective
companies. The schedule of meetings held is listed
subjects.
in Annex 2.13.
Consultations 2.18 We greatly appreciate the support and inputs
provided by the Comptroller and Auditor General
2.13 The Chairman wrote letters to all Chief
(C&AG) of India in facilitating our interaction with
Ministers, Union Ministers, heads of national and
the Accountants General and for the detailed views
regional political parties, the country’s Executive
on the ToR of the Commission, including
Directors in IMF, World Bank and ADB and other
information regarding on-going reform efforts in
eminent persons in various walks of life, seeking
the direction of migration to accrual-based
their views on the issues before the Finance
accounting system by the Union and State
Commission.
Governments, management of backlog of accounts
2.14 Similar letters were addressed by the and audit of state PSUs and the state of accounts
Secretary to all Union Secretaries, Chief and audit of local bodies. Detailed discussions on
Secretaries/Finance Secretaries of the states, a various issues were also held with the CA&G on 16
number of universities, including IIMs and IITs, June 2009.
soliciting their inputs on issues related to the ToR
2.19 We would like to thank the Reserve Bank of
of the Commission.
India (RBI) for making available data and analysis
2.15 Five regional meetings of economists and on various fiscal issues, particularly on post-
economic administrators were organised for FRBMA (Fiscal Responsibility and Budget
detailed consultation and exchange of views on the Management Act) fiscal architecture and the RBI
issues before the Commission. These were held on Staff Study Report on ‘Fiscal Consolidation by
23 January 2008 at New Delhi; on 25 February Central and State Governments: The Medium Term
2008 at Chennai; on 10 March 2008 at Kolkata; on Outlook’. The RBI also took the initiative in
26 March 2008 at Pune and on 10 April 2008 at conducting a number of other studies which
15
Thirteenth Finance Commission
provided very useful information and analytical held on 13 December 2008 at Asian
data on various issues related to the Finance Development Research Institute (ADRI),
Commission. Patna. A list of participants is placed in
Annex 2.20.
Workshops and Seminars
viii)A workshop on ‘Empowering the Panchayati
2.20 A number of workshops/seminars were Raj Institutions (PRIs)’ was held at the
organised, each focused on significant issues before Institute of Rural Management, Anand
the Commission, as follows: (IRMA), Gujarat on 22-23 December 2008.
A list of participants is placed in Annex 2.21.
i) A workshop to discuss issues relating to
‘Local Self Government’ was held at ix) A workshop on ‘Development of Good
Bengaluru on 26 February 2008. A list of Governance Index for the States in India’
participants is placed in Annex 2.14. was organised by the National Institute of
Administrative Research, Mussoorie at the
ii) A meeting on ‘Priorities Before the
India International Centre, New Delhi on 14
Thirteenth Finance Commission’ was held at
November 2008. A list of participants is
the Y.B. Chavan Centre, Mumbai on 27
placed in Annex 2.22.
March 2008. A list of participants is placed
in Annex 2.15. x) A conference on India’s medium-term
macroeconomic and fiscal outlook was held
iii) A conference was held by the Centre for
at New Delhi on 2 June 2009. A list of
Research in Rural and Industrial
participants is placed in Annex 2.23.
Development (CRRID), Chandigarh to
consider the ‘Special Problems and Prospects xi) Expenditure on employees’ salaries and
of Development of Border Areas’ on 5 April pension benefits forms a major part of the
2008. A list of participants is placed in Annex public expenditure of states. A study was
2.16. commissioned in May 2009 to work out the
approach and roadmap through which states
iv) An international seminar on ‘Challenges
can build reliable employee and pensioner
Before the Thirteenth Finance Commission’
data bases as well as a data management
was organised by The Foundation for Public
systems. This will enable them to ensure
Economics and Policy Research (FPEPR) at
effective fiscal planning as well as simulate
India Habitat Centre, New Delhi on 17 May
the fiscal impact of recommendations by
2008. A list of participants is placed in
future Pay Commissions and Finance
Annex 2.17.
Commissions. A conference was held on 30
v) A seminar was organised by the National July 2009 at the India International Centre,
Institute of Public Finance and Policy New Delhi to discuss various options on this
(NIPFP) on ‘Issues Before the Finance issue.
Commission’ on 23-24 May 2008. A list of
2.21 These seminars, addressed by prominent
participants is placed in Annex 2.18.
economists, financial sector administrators, policy
vi) Another seminar was organised by the makers and practitioners provided significant
NIPFP on ‘Issues Related to India’s Fiscal inputs to the Commission’s work.
System’ on 15 November 2008. A list of
2.22 A meeting with the state Finance Ministers
participants is placed in Annex 2.19.
was held on 16 September 2008. A number of issues
vii) A workshop on ‘Inter-state and Intra-state on Centre-state fiscal relations covering the
Economic Disparities in India: Implications common problems of all states as well as special
for the Thirteenth Finance Commission’ was problems of groups of states were discussed during
16
Chapter 2: Introduction
this meeting. The state Finance Ministers, for the Visits of the Commission
first time, presented a collective memorandum to
2.25 The Commission visited all the 28 states
the Commission which greatly facilitated our work.
between June 2008 and July 2009 as part of
A list of participants is placed in Annex 2.24.
consultations with the State Governments and other
2.23 A meeting between the Finance key stakeholders. The State Governments sent their
Commision and the Planning Commission was memoranda in advance. The visits to states were
held on 23 October 2009. The Chairman of the briefly suspended during April and May 2009 due
Finance Commission, Deputy Chairman of the to elections for the Lok Sabha and some state
Planning Commission and Members of both the legislative assemblies. During state visits, discussions
Commissions discussed a number of issues were held with the Chief Ministers, their cabinet
related to the Centre and the states as well as colleagues, and other senior officials of the State
arising from the ToR. These included the fiscal Governments on the fiscal and financial situation of
position of the Centre and states, the the states their funding priorities and requirements.
requirements of GBS, additional funding In each state, during the course of the visit, separate
requirements for implementing flagship meetings were held with representatives of
programmes and options for fiscal adjustments recognised political parties, representatives of urban
by the Centre and states. The list of participants and rural local bodies and representatives of trade
is given in Annex 2.25. and industry. The Commission also undertook field
visits which enabled it to get first hand experience of
2.24 A large number of central ministries/ important developmental issues. The itinerary of the
departments had sent their comments on the Terms state visits is placed in Annex 2.27. A list of
of Reference of the Commission with reference to participants who attended the discussions during
their respective subject matter. Detailed discussions these visits is placed in Annex 2.28. We are thankful
were held with the various ministries/departments to the State Governments for making extensive
on the issues concerning them as per the schedule arrangements to ensure fruitful discussions and field
indicated in Annex 2.26. visits by the Commission.
17
Thirteenth Finance Commission
2.26 With a view to keeping abreast of the latest Chairman, the National Innovation Foundation
international developments in fiscal federalism, compiled state-wise booklets which included:
measures to improve the quality of public
i) Innovations developed within the particular
expenditure, environmental issues and Goods
state and relevant nationally.
and Services Tax (GST), the Commission visited
the US and Canada during 14-24 October 2008. ii) Innovations from the rest of the country
During the US visit, in addition to various relevant to the particular state.
meetings with international experts, the iii) Relevant herbal practices and products of the
Commission attended a workshop and a seminar state.
at Washington DC. The workshop was organised
jointly by the World Bank and IMF and the These state-specific booklets were shared with the
seminar was organised by the Centre for states during the Commission’s visits. These
Advanced Studies of India (CASI), University of booklets were also put up on the Commission’s
Pennsylvania, Philadelphia. Both reviewed the website to enable public access. We are thankful to
issues before the Commission. In Canada, the the National Innovation Foundation and its
Commission met officials of the Federal Chairman, Dr.R.A. Mashelkar and Vice-Chairman
Government as well as officials of the provinces Prof. Anil K. Gupta for preparing these very useful
of Quebec and Ontario. The Commission also volumes, one for each state, at very short notice.
participated in a seminar organised by the 2.29 The Commission called for information on
International Development Research Centre innovations introduced by State Governments to
(IDRC), Ottawa. Annex 2.29 provides details of improve service delivery and administrative
the visits. systems. A number of significant innovations were
highlighted by the states. There is clearly a need to
Studies Commissioned and create a climate and nurture a culture for diffusing
Other Inputs innovations in public systems.
2.27 Our task covered a very broad spectrum of 2.30 The reports of earlier Finance Commissions
issues. Hence, in addition to the data/information provided extremely useful inputs to our work. We
collected from the states and the consultative also consulted extensively reports of other
process followed to elicit views and suggestions on commissions and committees, such as the Second
various aspects, a number of research studies were Administrative Reforms Commission (SARC), as
sponsored by the Commission. These studies, well as other government commissions, committees
undertaken by premier research institutions, and expert groups.
contributed to the knowledge base of the
Commission, enhancing its analytical ability in Working Groups and Task Forces
making its recommendations. We recommend that
2.31 A technical group chaired by Dr. Indira
once our report is tabled in Parliament, the study
Rajaraman, Member of the Commission and Shri
reports, as listed in Annex 2.30, be made available
Ramesh Kolli, Additional Director General,
on the Commission’s website for use and reference
Ministry of Statistics and Programme
by students, researchers, academicians and all
Implementation and comprising Dr. R.C. Sethi,
others interested in these issues. Our programme
Additional Registrar General of India; Shri R.
of research and studies was made easier by the
Sridharan, Adviser (FR), Planning Commission; Dr.
delegation of financial powers by the Ministry of
Laveesh Bhandari, Director, Indicus Analytics Pvt.
Finance for this purpose.
Ltd., New Delhi and Dr. Rathin Roy, Economic
2.28 The Commission recognises the role of Adviser of the Commission as Members, examined
innovation in enhancing outcomes and better the feasibility of utilising district level indicators for
managing the environment. At the request of the measuring the intra-state disparities.
18
Chapter 2: Introduction
2.32 A working group was constituted under the federalism in India. A group of 23 officials from
chairmanship of Shri T.N. Srivastava, Member Bhutan, Indonesia, Philippines and Thailand
Secretary, FC-XI and Dr. Pradeep Apte, from the visiting India under the Colombo Plan as a part of
Department of Economics, Fergusson College, Pune the Capacity Building Programme to share Indian
and Member, State Finance Commission (SFC), Governing Practices also visited the Finance
Maharashtra; Prof. Nripendra Nath Commission on 21 August 2009 to familiarise
Bandyopadhyay, Member, Third SFC, West Bengal; themselves with the financial devolution practices
Dr. Tapas Sen, Senior Fellow, National Institute of in India.
Public Finance & Policy; Prof. M.A. Oommen from 2.37 The Commission had the benefit of receiving
the Institute of Social Sciences and Shri views on various issues relating to its terms of
Dharmendra Shukla, Member Secretary, Third SFC reference from a large number of eminent
Madhya Pradesh, as Members to draw up a common personalities from various walks of life, who met
template for the use of SFCs. the Chairman, Members and Secretary of the
2.33 A task force comprising Shri Arbind Modi, Commission. The list of visitors who met the
Joint Secretary, Department of Revenue as the Chairman is placed in Annex 2.31.
Chairman and officers of FC-XIII, namely, Shri V. 2.38 A two-month internship programme was
Bhaskar and Shri B.S. Bhullar, Joint Secretaries; Dr. introduced in the Commission for providing
Rathin Roy, Economic Adviser; and Shri Ritvik exposure to postgraduate students in Economics/
Pandey, Deputy Secretary, as Members, was set up Public Finance/Financial Management, on the
to assist the Commission on issues related to the working of the Finance Commission. There was an
proposed implementation of GST from 1 April 2010. overwhelming response from the candidates
2.34 Another technical working group was seeking a chance to work as interns in the
constituted to review the Debt Consolidation and Commission. Seven interns worked in the
Relief Facility (DCRF) 2005-10. This was headed Commission on short term projects.
by Dr. Rathin Roy, Economic Adviser, FC-XIII with 2.39 We inherited an excellent website from
Mrs. Anuradha Prasad, Finance Manager (Maritime FC-XII. The Commission’s website was
Systems), Ministry of Defence; Shri B.M. Misra, re-designed around four objectives. The first was
Adviser, Central Office, Reserve Bank of India, to be a permanent storehouse of information on this
Mumbai and Shri Vijay Singh Chauhan, Additional Finance Commission and previous Finance
Director, Directorate of Revenue Intelligence, New Commissions for all stakeholders and to provide
Delhi, as Members. continuity between Commissions. The second was
to provide a status of its ongoing work including a
2.35 We wish to place on record our appreciation
summary of the discussions it held with all State
of the contribution made by these groups.
Governments. The third was to seek suggestions on
issues before the Commission, both in response to
Other Meetings
specific discussion papers posted on the website as
2.36 A high level Ethiopian delegation led by well as suo moto suggestions from interested
Mr. Dagfe Bula, Speaker of the House of Federal parties. The fourth was to act as a medium for
Democratic Republic of Ethiopia visited the exchange of information between State
Commission on 7 May 2008. Another delegation Governments and the Commission. Data exchange
from Ethiopia led by HE Mr. Mesfin Mengistu, was web-enabled, ensuring quicker and more
Chairperson of Expenditure Management & Control accurate transmission of information. The site
Standing Committee of the House of Peoples’ which was designed to ensure easy access to data
Representatives of the Federal Republic of Ethiopia received nearly 1,50,000 hits between January
visited the Finance Commission on 5 November 2008 and December 2009. We expect that the
2008 to keep abreast of the system of fiscal National Informatics Centre (NIC) Unit in the
19
Thirteenth Finance Commission
Ministry of Finance will maintain this website till Brazil. Shri Sanjeev Joshi, Dr. R.N.Sharma, Shri
the next Commission takes it over. Subhra Ray, Smt. Neeru Shad Sharma, Joint
Directors and Shri Harish Pokhriyal, Dr. Manish
Acknowledgements Gupta, Shri J.K. Rathee, Shri A.S.Parmar, Shri D.
2.40 We would like to place on record our Brahma Reddy, Shri Upendra Sharma, Deputy
appreciation of the valuable and wide ranging Directors and all the other officers and members
contribution of the officers in the Commission. of the staff, are listed in Annex 2.6, contributed
Their untiring work and diligent analysis of all the significantly to our work. Smooth running of
material received by the Commission was housekeeping by the support staff, including those
extremely useful for us in formulating our views on contract, ensured the efficient functioning of
on various issues arising from our Terms of the office. Our special thanks are due to Shri S.
Reference. We are deeply thankful to Shri Ravi, PS to Chairman and our personal staff who
V.Bhaskar and Shri B.S. Bhullar, Joint Secretaries; put in their best efforts throughout the past two
Dr. Rathin Roy, Economic Adviser; Shri Rajib years. We would like to thank the team from the
Kumar Sen, Shri P.K.Verma and Shri S.K.Bansal, National Informatics Centre, in particular, Shri
Directors; and Shri Ritvik Pandey, Deputy Nagesh Shastri, Senior Technical Director and Shri
Secretary. We were also fortunate to have P.K. Garg, Technical Director, for managing the
benefited from the services of Shri G.R Reddy as IT requirements of the Commission, as well as the
Adviser, who joined us in October 2009, after Government of India Printing Press for printing
Dr. Roy left to take up his assignment with UNDP, this report on time.
20
CHAPTER 3
Issues and Approach
3.3 Every Commission is required by its 3.5 The ToR assign FC-XIII a specific ‘macro
Terms of Reference to keep specific policy policy task’, which is to review the state of the
21
Thirteenth Finance Commission
finances of the Union and the states and the fiscal framework has to serve the purposes of the
operation of the states’ Debt Consolidation and contemporary development project, while at the
Relief Facility (DCRF) 2005-10 and suggest same time, ensuring that it functions within the
measures to maintain a stable fiscal environment, regulatory framework defined, in our time, by
consonant with equitable growth. A subsequent the Constitution of India.
addition to our ToR mandates us to review the
3.10 Inclusive growth is the cornerstone of
roadmap for fiscal adjustment and suggest a
India’s development project. India’s recent
suitably revised roadmap that would maintain the
economic growth performance has, indeed, been
gains of fiscal consolidation through 2010-15.
creditable. However, such growth must make a
3.6 The issues that we have to consider, demonstrable difference to the lives of the
therefore, directly emanate from the ToR of this poorest and most vulnerable citizens. On this, as
Commission. In this chapter we will outline the reflected in the Millennium Development Goals
broad considerations that inform the (MDGs) there is global consensus, of which our
Commission’s approach to its core and policy nation is a part. India has the potential and the
tasks. We also discuss the main issues and our means to secure such a future for its citizens. The
proposed approach. stress laid on inclusive growth in the Eleventh
Plan has meant that such growth has been
3 . 7 The overall approach of the Commission
accompanied by a concerted effort, by all levels
is to foster ‘inclusive and green growth promoting
of government, to invest in the delivery of public
fiscal federalism’. This is the vision underlying
services, particularly those which promote
the Commission’s recommendations on
progress in achievement of the MDGs. But, to
inter-governmental fiscal arrangements and on
achieve this potential, it is necessary that
the roadmap for fiscal adjustment. This vision
resources be mobilised and deployed in such a
has to be given effect within the overall structure
manner that the recent high rates of growth are
of inter-governmental fiscal arrangements,
maintained and even increased. Thus, sustainable
whose contours are Constitutionally specified.
and inclusive growth are prerequisites for
3.8 The federalist development State is a domain achieving the MDGs.
for evolutionary policymaking, responsive to
3.11 Inclusivity informs our recommendations
internal and external policy imperatives such as
in every sphere. In our formula for horizontal
political integration and globalisation, with
devolution, the highest weightage amongst all the
sovereign powers to fulfil its mandate. These
variables is for correcting the fiscal disability of
powers are, however, not absolute. The
a state vis-a-vis those of the top-ranked states.
development project of the state is enabled by
Further, we also recognise the fiscal disability of
evolutionary policy making, while circumscribed
the special category states by computing their
by the laws that mandate the exercise of its
fiscal distance from the top-ranked states after
sovereignty in the formulation and implementation
setting their tax effort at the average for the
of policy.
special category alone, in place of an all-state
3.9 Kautilya argued for a social contract average. Inclusivity is justified, not merely to
defined by laws, principles and doctrines in ensure equal treatment of citizens by
Dharmasastra and Arthasastra, delimiting the governments, but also for long term economic
Constitutional metes and bounds of Monarch and efficiency reasons, so as to minimise the burden
State. The Indian Constitution can, thus, be seen of fiscally-induced migration on high-income
from a variety of perspectives, as providing a states. It also underlies our attempt to prescribe
regulatory framework within which the a fiscal roadmap targeting elimination of the
developmental federalist State undertakes its revenue deficit so that net new borrowing is
project. The structure of the inter-governmental directed towards creation of public
22
Chapter 3: Issues and Approach
infrastructure which would benefit all. It also 3.14 A high growth economy minimises the risk
underlies many of our grant provisions, for of ‘crowding out’ of the private sector, by allowing
instance, maintenance for the new village the government to increase fiscal space for public
connectivity roads financed under Pradhan investment consistent with fiscal prudence. In
Mantri Gram Sadak Yojana (PMGSY). And finally, fact, in such an environment, the private sector
inclusivity underlies our substantially enhanced becomes a valuable actor. Better targeted public
grant for local bodies, including those of the good delivery systems can be used to engage the
Schedule V and VI areas, so as to enable provision private sector in the provision of key public
of sanitation and other public goods. goods, particularly infrastructure. Effective fiscal
consolidation ensures that the government gets
3.12 Fiscal consolidation promotes growth. By
the best value for money from such engagement.
fiscal consolidation we do not mean a reduction
In assessing the resources available for overall
in the role of the State. In a complex and
transfers the Commission has also taken into
developing economy like India, the government
account the total resources available, including
will continue to mobilise and deploy a significant
potential inflows from disinvestment.
proportion of resources to promote public
welfare. Rather, fiscal consolidation refers to 3.15 Green growth involves rethinking growth
measures to improve the quality and effectiveness strategies with regard to their impact on
of the processes of public expenditure and environmental sustainability and the
resource mobilisation. We are of the view that environmental resources available to poor and
there are feasible pathways for fiscal consolidation vulnerable groups. It is significant to note that
with high growth, as a study by the NIPFP for this many stimulus packages announced globally to
Commission shows analytically. In the present combat recession incorporated a green
context, this also means providing the fiscal space component. International experience is that
to promote both public and private investment, green growth promotes inclusivity. Further, the
so as to secure the highest possible sustainable, renewable energy sector is relatively labour
green and inclusive rate of growth for the Indian intensive, with the potential for generating more
economy. For the Commission, this involves jobs than the oil and gas industries.
proposing ways to incentivise such consolidation
3.16 Securing the environment is critical for
within the mandate and instruments at our
India’s future generations and not just a matter
disposal. We have been particularly mindful of this
of international commitment. A degraded
challenge in our recommendations with respect
environment reduces the quality of life for all
to the future fiscal roadmap.
citizens, but the impact is particularly
3.13 For achieving a greener and more pronounced on the poor and vulnerable groups, as
inclusive growth path we need a fiscally strong it is they who suffer the most from degraded access
Centre, fiscally strong states and fiscally strong to clean water, air and sanitation, as well as from
local bodies, or the third tier of government. climate shocks. It is for this reason that, despite the
Therefore, we are proposing the strategy of fact that India’s per capita greenhouse gas emissions
‘expansionary fiscal consolidation’ with no are much below the world average and far lower
compression of development expenditures. Such than the average of developed countries, we have
a fiscal strategy will provide a more propitious pursued policies which complement efforts
environment for increasing both public and towards mitigation of climate change. It is,
private investments, as well as for better handling therefore, important to incentivise fiscal policies
of adverse economic shocks that we may face due that promote measures for energy conservation,
to external developments. In other words, the renewable energy, soil conservation, afforestation
proposed fiscal strategy will also improve our and more effective and affordable access to clean
country’s economic security. water at different levels of government. This would
23
Thirteenth Finance Commission
impact all levels of government, including local This is a one-time demographic dividend which
bodies, which face mounting challenges in needs to be harnessed through appropriate
delivering better access to clean water, better solid investments in human development, particularly
waste management and enhanced, but green local in education and public health, so that the
infrastructure. Our grant proposals are supportive country, having undertaken its long term
of such an approach. development transformation, is then able to cater
to the long term challenge that this dividend
3 . 1 7 In India, Finance Commissions have had
poses—that of an ageing population. In making
to face three important challenges. First, there
its awards the Commission has to be mindful of
has been a historically high degree of vertical
the short and long term implications that these
imbalance between the Centre and the states, as
challenges pose for the public finances of India
will be shown in Chapter 4. Recently, there has
and the need to foster the appropriate fiscal
also been an increase in the size of the
incentives to address these challenges.
non-shareable portion of central revenue
receipts. Second, there is spatial inequality in 3.19 An important challenge faced by our
the fiscal capacity and fiscal needs of different Commission was that the assessment of the
states. The reasons underlying this spatial resource position of the Centre and the states has
inequality vary considerably, depending on the had to be made in the face of more than normal
state in question. Further, different states are at uncertainties, given the developments in the global
different stages of the development economy and the consequent need for resources
transformation, so their fiscal needs also vary to be devoted to stabilisation and countercyclical
over time. The Constitution provides general measures by the Centre as well as the states. The
guidance on addressing the needs of the states Commission’s recommendations for vertical and
and the Centre as well as taking account of horizontal devolution have to be consistent with
state-specific needs, but does not provide the the requirement that the Commission ‘…. suggest
prescriptive framework for Finance a suitably revised roadmap with a view to
Commissions. Third, it is a fact that recent maintaining the gains of fiscal consolidation
decentralisation initiatives and the increasing through 2010 to 2015’. The impact of
pace of urbanisation have considerably countercyclical measures on the absolute and
increased the fiscal obligations of the third tier relative finances of Central and State Governments
of government, but not the devolution of human will affect the future fiscal roadmap. This, in turn,
and financial resources to discharge these has to be taken into account in preparing the
obligations. This has increasingly become an forecasts necessary to calculate consistent and
important dimension of the work of every appropriate vertical and horizontal devolutions.
Finance Commission. Thus, the work of every
3.20 All Commissions have to approach their
Commission is multi-dimensional in nature.
tasks, recognising that the data base for many
3.18 Added to this are the new domestic important economic variables (e.g., taxable
challenges that have emerged. The imperatives capacity) is less than perfect and may require
of urbanisation, empowerment of India’s villages approximations and normative corrections. We
and improved information flows have are well aware that it is desirable to make the
collectively increased the expectation and fiscal awards more incentive-compatible and
demand for public and merit goods. In meeting better targeted to securing the different
this demand the challenge of sustainable objectives enjoined on the Commission in its
development has to be kept firmly in mind, so terms of reference. This requires the Commission
that present generations do not diminish the lives to identify and use reliable and widely acceptable
and capabilities of future generations. Further, data which is regularly available, easily
India has one of the world’s youngest populations. understood and does not require interpretation
24
Chapter 3: Issues and Approach
25
Thirteenth Finance Commission
public investment is growth-promoting, its at all levels of the government have a strategic
quantum in any single year has to be subjected role in the Commission’s approach towards fiscal
to an overall fiscal deficit cap. This ensures that consolidation. A major thrust of the proposed
public claims on financial savings do not crowd expenditure reforms is to improve the supply of
out private investment. It also ensures public goods which is also inclusive by reducing
avoidance of the kind of bunching of repayment existing untargeted and regressive subsidies.
obligations that can happen when public Other reforms are aimed at improving the
borrowing is not paced uniformly across years productivity of public expenditure. These
and permits the kind of pre-planning and include: (i) performance-linked incentives to
judicious choice of projects necessary if public states and local bodies; (ii) measures to improve
investment is to have maximal impact. These are transparency and accountability, e.g., stricter
the multiple considerations that have gone into audit procedures; (iii) ‘institutional deepening’
our configuration of the roadmap for fiscal for better expenditure management, e.g.,
adjustment over the horizon 2010-15. creation of the local body ombudsman, fiscal
council and independent evaluation
3.25 We have also carried forward the practice,
organisations; (iv) promotion of innovations and
introduced by FC-XII, of incentivising fiscal
their diffusion so as to reduce cost as well as to
consolidation by states. The intent is not to
improve quality of public services and (v) larger
restrict the discretionary latitude of states with
fiscal transfers to the local bodies, to encourage
respect to their fiscal domain, but to secure
speedier implementation of the 73 rd and 74 th
commitment by all states to the national fiscal
Constitutional amendments regarding the
consolidation required for achievement of
transfer of functions and functionaries in
macroeconomic stability. Our projections of
consonance with the subsidiarity principle.
revenues of states into 2010-15 enjoin greater
tax effort on the part of states with a poor revenue Considerations in Recommending the
collection record, thus implicitly rewarding Design of Fiscal Transfers
states with higher levels of past achievement. Our
projections of state expenditures are based on 3.28 The approach to designing fiscal transfers
norms by type of expenditure, thus indicating by this Commission is, in its basics, consistent
the directions open to states for expenditure with the approach of recent Commissions. The
reform. Equally, the proposed expansionary availability of resources and expenditure
fiscal consolidation path for the Union will requirements of the Centre and the states has
promote inclusive growth. been assessed on the basis of certain norms.
Having estimated these, the vertical and
3.26 We have sought to design grants with a horizontal devolution of taxes is determined.
view to incentivising improvements in Grants are then allocated to states, based on
accountability of, transparency in and certain criteria. However, these are not to be
innovation at, the cutting edge of the public goods understood as linear stages in the Commission’s
delivery process. Thus, the Commission’s
working. A calibrated normative approach, is
approach is geared to advancing the fiscal
followed, where the assessment of resources
reforms agenda in all these three dimensions.
available and expenditure commitments
3.27 Expenditure reforms are an important forecast by different government entities is
driver of the Commission’s approach to the undertaken, bearing in mind the overall
fiscal roadmap for the future. Two resource envelope available to the general
game-changing tax reforms, namely GST and the government, viz. gross revenue receipts of the
new Direct Tax Code, will give considerable Government of India and the State
impetus to revenue growth. Expenditure reforms Governments, as well as the desired roadmap
26
Chapter 3: Issues and Approach
for fiscal consolidation. An iterative process with in macro-fiscal circumstances and has, in turn,
application of careful judgment and appreciation not caused structural shocks to the macro-fiscal
of the evolutionary nature of past trends helped situation in the Indian economy. Thus, there is a
us to determine the vertical sharing of resources marked tendency towards stability in the relative
between the Union and the states. Our endeavour share of the Centre and states in respect of
has been to make this process transparent in our aggregate transfers.
explanation of the logic underlying the
Commission’s recommendations on vertical and 3.31 The overall approach of the Commission
horizontal devolution and the principles has taken account of the following issues in the
governing the award of grants-in-aid to the states design of fiscal transfers:
and local bodies.
i) Symmetry between the Centre and states: It is
3.29 Table 3.1 gives the share of each state in commonly understood that the intent of setting
total FC transfers and the deviation from the up a Constitutional body such as the Finance
mean share across Commissions. This analysis Commission is to ensure that all levels of
has been carried out for all Commissions. We government are accorded similar treatment. In
have, as far as possible, tried to keep the making projections of revenue and expenditure
boundaries of the states across two consecutive we have applied a normative discipline for both
FCs same, so as to enable proper comparison. the Centre and states.
For example, in the case of FC-XII the share of
ii) Equal treatment: There are two contexts in
Jharkhand has been added to that of divided
which this proposition may be understood. First,
Bihar to get the share of undivided Bihar for
there is no automatic priority accorded to any
comparison with the Bihar of FC-XI. Our analysis
level of government, or to any two units at the
indicates that differences exceeding 1 per cent
same level of government within the framework
are very rare; the largest difference, of 3.31 per
of inter-governmental relations, in the
cent, happening but once in the case of the
Commission’s award. Second, the Commission is
Eleventh Commission, relative to the Tenth
concerned with equalisation, not equity. This
Commission, for Bihar. By and large, inter se
proposition needs to be understood in a
changes in tax devolution shares tend not to
citizen-centered, rather than government-
exceed half a percentage point. Differences tend
centric fashion, namely, that all citizens of India
to be larger in the case of grants; and even so,
should expect to receive a comparable standard
differences exceeding 3 per cent are fairly rare.
of public services, irrespective of where they
In some cases, (e.g., Nagaland and Jammu &
reside within the Republic of India. The intent is
Kashmir in the case of the last two Commissions),
to ensure that the states and local bodies have the
the large differences reflect the provision or
fiscal potential to provide comparable levels of
expiry of a major specific purpose grant. It can,
public services, at reasonably comparable levels
therefore, be concluded that, in general, the inter
of taxation. Clearly, this does not mean that per
se shares of Finance Commission transfers have
capita expenditure on such provision will be even
not varied widely over the various Commissions.
across the country; conversely, it means that one
This is an important feature of the political
of the requirements of equal treatment is to
economy of India’s fiscal federalism.
address differences in fiscal needs and cost
3.30 This remarkable stability across time and disabilities for providing a similar level of public
over a variety of circumstances, (for instance, services, which may be higher or lower than the
covering the years of fiscal squeeze as well as the average. Thus, the principle does not guarantee
relative fiscal abundance of recent years) has uniformity in public services across the country,
meant that the structure of inter-governmental but addresses the fiscal requirements of each
fiscal relations has not been ‘shocked’ by changes jurisdiction to enable such uniformity.
27
Table 3.1: State-wise Share in Total Transfers (Tax devolution + Grants) as Recommended by Different
FCs and its Deviation from the Mean Share
28
(per cent)
State First Second Third Fourth Fifth Sixth Seventh Eighth Ninth (1) Ninth (2) Tenth Eleventh Twelfth Mean
Andhra Pradesh 4.16 8.58 9.31 8.05 7.77 8.08 7.30 7.34 6.60 6.83 7.98 7.13 6.66 7.37
(-3.21) (1.21) (1.95) (0.68) (0.4) (0.71) (-0.07) (-0.03) (-0.77) (-0.54) (0.61) (-0.24) (-0.71)
Assam 4.60 4.33 4.47 5.04 3.65 4.58 2.49 4.07 4.12 3.73 3.67 3.05 3.22 3.92
(0.67) (0.4) (0.55) (1.12) (-0.27) (0.65) (-1.44) (0.15) (0.19) (-0.19) (-0.25) (-0.87) (-0.71)
Thirteenth Finance Commission
Bihar 11.78 9.09 7.83 6.91 9.57 8.79 10.62 10.70 10.65 10.54 10.88 13.04 13.14 10.27
(1.51) (-1.18) (-2.44) (-3.36) (-0.7) (-1.48) (0.35) (0.43) (0.38) (0.27) (0.61) (2.77) (2.87)
Chhattisgarh 2.42
Gujarat 3.41 6.50 4.23 4.34 3.84 4.62 3.77 3.19 3.50 3.92 2.76 3.39 3.96
(-0.54) (2.54) (0.27) (0.39) (-0.12) (0.67) (-0.18) (-0.76) (-0.45) (-0.04) (-1.2) (-0.57)
Haryana 1.19 1.42 1.26 1.48 1.11 1.21 1.13 1.23 0.97 1.06 1.21
(-0.01) (0.21) (0.05) (0.28) (-0.09) (0) (-0.08) (0.03) (-0.24) (-0.14)
Himachal Pradesh 0.94 2.12 1.56 1.96 1.86 1.75 2.10 1.72 1.91 1.77
Jammu & Kashmir 2.34 1.66 2.27 2.17 2.42 1.81 2.84 3.48 3.17 3.23 3.78 2.76 2.66
(-0.32) (-1) (-0.39) (-0.49) (-0.24) (-0.85) (0.18) (0.82) (0.51) (0.57) (1.12) (0.1)
Karnataka 1.42 7.01 6.19 7.48 4.65 3.99 4.82 4.38 4.22 3.83 4.64 4.53 4.16 4.72
(-3.3) (2.29) (1.48) (2.77) (-0.07) (-0.72) (0.1) (-0.34) (-0.5) (-0.89) (-0.08) (-0.19) (-0.56)
Kerala 0.85 3.62 5.23 6.51 4.38 4.99 3.70 3.27 3.01 3.25 3.41 2.83 2.59 3.66
(-2.81) (-0.04) (1.56) (2.85) (0.71) (1.33) (0.03) (-0.4) (-0.66) (-0.41) (-0.26) (-0.83) (-1.07)
Madhya Pradesh 5.84 6.81 6.62 5.60 6.45 5.66 7.66 7.50 6.99 7.40 7.10 8.05 8.55 6.94
(-1.1) (-0.13) (-0.32) (-1.34) (-0.49) (-1.28) (0.72) (0.56) (0.04) (0.46) (0.16) (1.11) (1.61)
Maharashtra 16.35 10.47 9.12 9.01 9.16 7.40 8.22 6.68 6.71 5.85 6.05 4.46 4.79 8.02
(8.33) (2.45) (1.1) (0.99) (1.14) (-0.62) (0.2) (-1.34) (-1.31) (-2.17) (-1.97) (-3.56) (-3.23)
State First Second Third Fourth Fifth Sixth Seventh Eighth Ninth (1) Ninth (2) Tenth Eleventh Twelfth Mean
Manipur 0.50 1.33 0.93 1.19 1.09 1.02 0.94 0.74 0.91 0.96
Meghalaya 0.35 0.91 0.64 0.97 0.82 0.78 0.83 0.68 0.58 0.73
Nagaland 0.05 2.01 1.53 1.41 1.15 1.34 1.25 1.17 1.23 1.02 0.99 1.20
(-1.14) (0.81) (0.34) (0.21) (-0.04) (0.14) (0.06) (-0.02) (0.04) (-0.17) (-0.21)
Orissa 5.06 4.51 7.72 8.03 5.41 6.01 4.72 4.84 4.53 5.21 4.28 4.77 4.89 5.38
(-0.32) (-0.87) (2.34) (2.65) (0.02) (0.62) (-0.66) (-0.54) (-0.85) (-0.17) (-1.1) (-0.61) (-0.49)
Punjab 5.09 4.95 4.50 2.22 2.13 1.76 2.01 1.64 2.04 1.58 1.58 1.25 1.70 2.50
(2.59) (2.45) (2) (-0.27) (-0.37) (-0.74) (-0.48) (-0.86) (-0.46) (-0.92) (-0.91) (-1.25) (-0.79)
Rajasthan 5.35 4.57 5.36 4.52 4.99 5.87 4.33 4.25 4.77 6.15 5.03 5.42 5.17 5.06
(0.29) (-0.48) (0.3) (-0.54) (-0.07) (0.81) (-0.73) (-0.81) (-0.29) (1.09) (-0.03) (0.36) (0.11)
Tamil Nadu 9.87 6.95 7.00 7.17 6.98 5.60 7.21 6.25 6.38 5.85 5.89 4.97 4.85 6.54
(3.33) (0.41) (0.47) (0.63) (0.44) (-0.93) (0.68) (-0.29) (-0.15) (-0.69) (-0.64) (-1.57) (-1.68)
Tripura 0.63 1.38 0.96 1.42 1.34 1.35 1.27 1.00 1.11 1.16
Uttar Pradesh 16.30 13.51 11.29 12.96 14.53 14.04 15.90 15.47 15.83 16.46 15.95 18.05 19.27 15.35
(0.94) (-1.85) (-4.06) (-2.39) (-0.82) (-1.31) (0.55) (0.12) (0.48) (1.1) (0.6) (2.7) (3.92)
Uttarakhand 1.61
West Bengal 13.35 9.85 7.15 6.78 8.44 8.57 7.66 8.74 6.99 6.99 6.61 8.10 6.73 8.15
(5.2) (1.69) (-1) (-1.37) (0.29) (0.41) (-0.49) (0.59) (-1.16) (-1.16) (-1.54) (-0.05) (-1.42)
Note: Figures in parentheses indicate deviation from the mean across Commissions.
The FC-XII figures of UP, MP and Bihar are for the undivided state (i.e., it includes respectively figures of Uttarakhand, Chhattisgarh & Jharkhand).
29
Chapter 3: Issues and Approach
Thirteenth Finance Commission
iii) Predictability: The ability of governments implementation. In our view the facilitating role of
to provide timely and need-based public the Finance Commission in designing such
services should not be negatively impacted by incentives is as critical as, if not more critical than,
uncertainties and/or volatilities regarding the process of determining the criteria for
resource flows. In the Indian context, where inter-governmental awards. Our Commission has,
resource flows across inter-governmental units therefore, tried to play its part in designing
are sizeable in magnitude, close attention needs incentives consistent with the Terms of Reference.
to be paid to this aspect in the design of the fiscal We have sought to maintain the incentive
framework. In India the Centre collects component within the devolution formula, while
important sources of revenue, which are then also seeking to provide grants to incentivise
devolved to the states. The Centre, states and improvements in governance and the environment.
local authorities, all have a role to play in We have, further, maintained time consistency of
financing the delivery of key public services incentives across recent Commissions in order to
within their respective jurisdictions. It is improve the impact of such incentives.
important to ensure that the medium term
framework for inter-governmental resource 3.32 Like our predecessors, this Commission’s
allocation allows all tiers of government to be recommended award has to take a very large
reasonably certain about the resources at their number of variables into consideration, given the
disposal, in order to undertake their respective terms of reference and the multi dimensional
expenditure assignments. 1 balancing required to arrive at consistent vertical
and horizontal transfers. In our approach we
iv) Incentives: Finance Commission awards are
have tried to ensure that:
but one part of the complex set of
institutions that constitute the framework of i) The normative annual needs of the Centre
inter-governmental arrangements in India. On the and the states are addressed at a level that
fiscal side, institutions like the Planning Commission, is largely acceptable to both, consistent with
the finance departments and planning boards of the requirements of fiscal consolidation.
different states, state Finance Commissions, the
judiciary and the legislature, all play a role in ii) The requirements of different elements in
determining the mobilisation and allocation of the terms of reference of the Commissions
public resources. In this context the Finance are addressed in a manner that is fully
Commission can play an important role in compatible with the Constitutional
incentivising different tiers of government to requirement to recommend an award that
undertake fiscal measures. A sterling example of takes account of the needs of the Centre as
this was the fiscal consolidation process undertaken well as those of the states.
in the period 2005-10. The role played by the iii) The design of vertical and horizontal
previous Finance Commission was not that of devolution as well as that of grants-in-aid
leading or implementing the process; instead, it was supports, rather than detracts from, efforts
that of incentivising the Central and State to maintain a ‘hard budget constraint’.
Governments to act on their resolve to reform the
public finances of India, by recommending iv) The design enables individual states to
appropriate fiscal and other policy measures that access resources for their overall
could serve as a roadmap, together with a development needs, through appropriate
framework of positive incentives for its inter se formulae for tax devolution, by a
1
Indira Rajaraman (2008), ‘The Political Economy of the Indian Fiscal Federation’ in Barry Bosworth, Suman
Bery and Arvind Panagariya (ed.), India Policy Forum 2007-08 (Brookings and NCAER), Volume 4; 1-35
30
Chapter 3: Issues and Approach
normatively forecasted non-plan revenue 3.34. There has been significant advancement
deficit for those states that continue to since the Government of India announced its
display a forecasted fiscal gap following the intention, in February 2007, to move to a GST
Commission’s normative assessment of by April 2010. The Empowered Committee of
their fiscal position for the 2010-15 period, state Finance Ministers has released two
and through the provision of general and significant documents–‘The Model and Road Map
state-specific grants. for Goods and Services Tax in India’ in April
2008 and the ‘First Discussion Paper on Goods
v ) Adequate attention is paid to the low
and Services Tax in India’ in November 2009.
resource base and the cost disabilities of
These documents, while reflecting the
special category states due to their
commitment of the State Governments to
physical geography, sparse terrain,
implement GST, indicate the present stage of the
remoteness and historical circumstances.
agreement reached on the GST model and its
3.33. We are required to consider the impact of implementation modalities. The Discussion Paper
the proposed implementation of the goods and suggests the possibility of different rates for goods
services tax with effect from 1 April 2010, and services and different tax thresholds for the
including its impact on the country’s foreign trade. Central GST and the State GST, while exempting a
GST, with its revenue and growth effects, influences number of items. It has yet to take a final view on
three other items in our ToR. These include the the Revenue Neutral Rate to be adopted and the
reference to estimation of the resources of the treatment of some goods. A number of State
Central and State Governments, the reference to Governments and industry associations have
the potential to improve the tax-GDP ratio of the independently expressed their concerns to the
Centre and the states, the reference to the need to Commission on the framework of the GST. We
balance the receipts and expenditure on the have, therefore, attempted to move this debate
revenue account and to generate surpluses for forward by defining the contours of a Model GST
investment. We have, therefore, attempted to be and incentivising State Governments to adopt it.
holistic in our consideration of GST as this is,
indeed, a ‘game-changing’ reform to create India Vertical Devolution: Issues and Approach
as a vibrant common market. Our approach seeks 3.35 A key economic feature of a nation State is
to define the contours of the present debate on the existence of an internal common market. An
GST and outline the framework for a Model GST. A important objective of economic policy should
National Council of Applied Economic Research be to make sure that this market functions as
(NCAER) study sponsored by the Commission efficiently as possible. This happens when
explains why implementation of such a Model GST resources and commodities move from one
will be a positive sum game and will bring region to another without impediments or
considerable economic benefits for the whole distortions caused by policy. While differences
country, with reduced transaction costs, revenue in local cost conditions may exist, their mitigation
neutrality and substantially lower tax rates. This is a legitimate objective of policy making.
study also suggests that implementation of the However, distortions caused by faulty policy
model GST will lead to better environmental design are undesirable. In a decentralised tax
outcomes. We seek to propose a ‘Grand Bargain’ system differences in tax structures across
through which such a GST can be implemented jurisdictions can cause undesirable distortions.
and which incorporates assurances on In addition, there are fixed administrative costs
compliance by all parties. We have also addressed associated with collecting different taxes which
the concerns voiced by some states on possible can be mitigated by a joint collection mechanism.
negative impacts. Thus, according to our Constitution, many direct
31
Thirteenth Finance Commission
taxes like Income Tax are levied and collected addition, devolution must be adequate with
by the Centre, but the proceeds are shared with regard to the requirements of fiscal consolidation
the states. Similarly, the principle of equal and reform that the Commission recommends.
treatment, irrespective of jurisdiction, is an
3.37 The Constitution specifies the taxing powers
important part of the political settlement in India.
of the Centre and states with respect to different
Thus, the principle that underpins both vertical
sources of tax revenue. It can be argued that there
and horizontal devolution is that equality of
is a vertical imbalance in the distribution of these
access should be enabled, but cannot ensure that
taxing powers which has worsened over time, as
common standards in quality or outcomes in
public services are actually achieved. For that pointed out in Para 3.17. While in the total revenue
to happen it is necessary that the average expenditure there has been long term stability
cross-state level of tax effort assumed actually in the relative shares of the Centre and the
prevails in the states and that efficiency of delivery states after implementation of the transfers
is not below the cross-state average. At the same recommended by the Finance Commission, the
time, we recognise that the Central Government buoyancy of central taxes has been higher than
can play a role in incentivising improved levels of those of the states and such a trend is expected to
public service delivery across the country. continue, given the nature of tax assignment to
the Centre and states. Rangarajan & Srivastava
3.36 Vertical transfers can be justified on four
(2008)2 have shown that to maintain constancy
principal grounds. First, transfers may be
in the share of states in post-devolution total tax
responses to the extant asymmetric
revenue, this share would need to increase by the
decentralisation of expenditure responsibility
and revenue-raising authority. Second, they may margin by which the buoyancy of central tax
be used to equalise the fiscal capacity of the revenue exceeds the buoyancy of combined tax
regions to avoid inefficient migration of persons revenue. The argument for using post-devolution
and businesses among regions and to foster tax shares to maintain consistency, as against
horizontal equity across the country. Third, these altering tax assignments, is based on the premise
may also be used in conditional forms to that most schemes of assigning resources in
neutralise fiscal externalities imposed by regional different country settings tend to be biased in
governments on other regions, as well as to favour of the Centre in assignment of tax collection
achieve national standards in social programmes powers on efficiency grounds.
and to induce efficiency in the internal economic
3.38 On the expenditure side it can also be
union. Finally, these may be used as instruments
argued that the states have higher ‘fixed costs’
for insuring regions against shocks to their fiscal
than the Centre, as reflected in their higher share
capacities (though this is mainly done through
of committed expenditure in total non-plan
grants-in-aid). Each of these reasons informs our
expenditure relative to the Centre. In addition,
assessment of vertical devolution. Given the
states have restrictions placed on their
background of the ongoing economic recession
borrowing powers. These features exacerbate
it is clear that it is both efficient and desirable for
the fiscal pressure on the states when, as is the
the Centre to institute countercyclical measures
case at present, an economic slowdown occurs.
to fulfil the key function of economic
The discretionary fiscal space available to
stabilisation. At the same time, the symmetric
states to maintain fiscal prudence in the face of
decentralisation of expenditure commitments
falling revenue buoyancy is less than that
and resource mobilisation powers requires
of the Centre. In addition, over the period
redressal through vertical devolution. In
2
C. Rangarajan & D.K. Srivastava (2008) : ‘Reforming India’s Fiscal Transfer System : Resolving Vertical &
Horizontal Imbalances’ : EPW Volume 43.
32
Chapter 3: Issues and Approach
2010-15, there is the added fiscal burden posed the targets may be readjusted in a transparent
by the states’ pay awards, following that of the manner. Similarly, we recommend a mechanism
Sixth Central Pay Commission (CPC). The fiscal whereby, in such cases, the states are absolved
burden of the latest round of pay awards is from the task of taking on macro-economic
much higher for the states in absolute as well adjustment and stabilisation. This task of
as relative terms. Another issue that has been macroeconomic stabilisation is a function which
kept in mind is the increased tendency to should be entirely assumed by the Central
expand the share of the non-divisible pool of Government. This is reflected in our recommended
resources available to the Centre, including design of the future fiscal roadmap.
cesses and surcharges, relative to the divisible
3.41 In the design of a prudent fiscal regime
pool. These important issues have informed the
there is a choice between delivery of public goods
Commission’s reflections on the appropriate
and services and provision of subsidies for
vertical devolution.
private goods. While it is undoubtedly true that
3.39 The Commission has explicitly recognised well directed subsidies can improve the access
the risks and uncertainties inherent in the current of target groups to merit goods, the extent to
macroeconomic situation. We have been mindful which this is true depends on what is subsidised
that our economy will continue to face such, and how. From the academic and policy literature
particularly due to external shocks. Keeping this on the subject and based on studies prepared for
in mind, we have been somewhat cautious in the Finance Commission, we are of the view that
projecting growth rates, for both GDP and for the impact of many central subsidies–including
revenues. In the case of GDP, our projected tax expenditures–is, on balance, regressive. Per
growth rates are lower than those given to us by capita subsidies flowing to the poorer states from
the Planning Commission. For projecting revenues the three major subsidies, viz. food, fertiliser and
of the Centre, the revenue buoyancy estimate that petroleum, were found to be far lower than the
we have adopted is lower than that of the Ministry national average. The reasons for this may vary
of Finance. Similarly, for the states’ revenue across the subsidies. Food subsidies are
projections, we have adopted relatively more determined inter alia by efficiency of
cautious revenue buoyancy parameters. Equally, administrative arrangements in the respective
whether for the Union or for the states, our fiscal states, as well as by their fiscal capacity to provide
correction targets are not overly ambitious, and additional subsidies. The use of fertilisers is
are more likely to lead to a situation where directly linked to irrigation facilities created and
performance is better than the promise. Such a the size of land holdings. Consumption of
development will only enhance the confidence of petroleum products is directly proportional to
the markets, particularly the capital markets. This the purchasing power of citizens. We have no
is, perhaps, a better way to build the country’s persuasive evidence that price subsidies on
reputational capital and will, thus, bring many long foodgrains, power and irrigation–constituting the
term benefits to the Central as well as State bulk of subsidies at the state level–are effective.
Governments. In fact, in our consultations and state visits we
found several examples of regressive incidence
3.40 In the case of the Centre, as well as of the
of these subsidies, largely on account of leakages
states, we have viewed the first year of the award
and highly imperfect targeting systems. This is a
period, namely 2010-11, as a year for adjustment
cause for concern.
and recovery. We recognise the impact of
exogenous price shocks on key fiscal parameters. 3.42 Given that inclusive growth is the
These shocks make predictability difficult. overriding objective of public policy, regressive
Thus, the proposed Central FRBM legislation untargeted subsidies that reduce fiscal space for
incorporates a terms of trade band, beyond which key growth-promoting public investments and
33
Thirteenth Finance Commission
delivery of public goods to enhance inclusiveness to each state–varies. The considerations that
are, today, a fiscal obstacle to the acceleration of determine the inter se share of an individual state
India’s development transformation. We have in the divisible pool need to factor in a state’s
also noted that the preceding Finance fiscal capacity. If all states had equal fiscal
Commissions took a very similar view in their capacity, then this would be done simply by
normative assessments of central and state dividing such a pool on the basis of fiscal need.
finances. Hence, this Commission, in its However, recognising the differences in the tax
normative approach and recommendations with base of different states, this is not an approach
respect to the future fiscal roadmap, has that has historically been followed.
recommended a fiscal path wherein subsidies are
iii) Costs of providing similar levels of public
closely targeted. We have sought to discourage goods and services: Such differences arise due
public spending on subsidies that detract from to feature-based or historical circumstances,
inclusive growth and, so, reduce fiscal space. adverse physical geography, sparse terrain, or
geopolitical constraints to development. To some
Horizontal Devolution: extent, the definition of some states as ‘special
Issues and Approach category states’ addresses this issue. However,
3.43 In determining horizontal devolution, the adequate attention will need to be paid to such
reports of previous Commissions and the factors, given the Commission’s terms of
professional literature identify four issues that reference with respect to disaster management
need to be addressed: and the attention we seek to give to green growth.
i) Fiscal need: In a diverse country like India it is iv) Rewarding efficiency in public management,
common for the fiscal needs of different states to fiscal effort and outcomes: The adoption of fiscal
vary. The drivers of such differences also vary. responsibility legislation and the general
improvement in the fiscal health of many states
The Commission has to balance the need for equal
has been one of the most positive features of the
treatment with the need to be sensitive to the
period following the report of FC-XII. We are
requirements of states in different stages of the
mindful of the need to sustain and build upon
development transformation. It is in this context
this effort and this requires incentivising
that purpose- and state-specific grants assume
improved efficiency in public expenditure
great importance. This is particularly the case
management and revenue effort.
since, as represented to us by many states, fiscal
need is not adequately captured by state level 3.44 We commissioned a joint study by the
development indicators. There are also Institute of Economic Growth (IEG) and India
important intra-state disparities which, quite Development Foundation (IDF) to evaluate the
legitimately, require deployment of resources to impact of fiscal transfers. The IEG-IDF study
address their fiscal needs. While lack of adequate constructed a multi-regional Computable
district level data has not allowed the General Equilibrium (CGE) model where the
Commission to address this issue as directly as Indian economy was stylised as an economy
comprising three regions, viz. high income,
we would have liked, we have been mindful that
middle income and low income regions. The IEG-
differences in fiscal need cannot be addressed
IDF study has provided valuable insights. This
simplistically.
shows that well-designed fiscal transfers from high
ii) Fiscal capacity: The core task of all states in income to low income regions of India have net
the Union of India is to provide those public positive welfare implications for all three regions.
goods and services that their Constitutional This is essentially due to the deep economic
responsibility mandates. However, the fiscal interdependence of the three regions and this
capacity–measured by the revenue base available impact will be even higher if such transfers are
34
Chapter 3: Issues and Approach
utilised for increased expenditure on basic needs fiscal discipline will, ceteris paribus, have the
and on capital formation. We have taken this into possibility of improving their inter se shares.
account in our approach to both horizontal
devolution and grant design. Principles Governing the Design of Grants
3.45 With regard to the criteria and weights for 3.47 Generally, the amount of grants-in-aid
horizontal devolution, it is difficult to map a provided to the states by different Finance
one-to-one correspondence between individual Commissions since the First Finance
criteria and one or more of the issues raised Commission have been under the Constitutional
above. For instance, higher population and/or obligation of the Union Government as per
area indicate the need to spend more in absolute articles 273 (1) and 275 (1). In addition, other
terms to provide the same level of public goods kinds of grants have been given to the states to:
and services. Equally, for similar levels of Gross (i) reduce disparities in the availability of
State Domestic Product (GSDP), a state with various administrative and social services
higher population would, ceteris paribus, have across states; (ii) allow particular states to meet
greater fiscal capacity. A larger area, ceteris special financial burdens emerging as a result of
paribus, implies larger factor endowment and their peculiar circumstances; and (iii) to provide
therefore, positively impacts fiscal capacity. For resources for specific activities considered to
this reason, this Commission has not attempted be national priorities. Further, grants such as
to explicitly assign specific criteria as measures the Debt Consolidation and Relief Facility of the
of fiscal capacity or fiscal need. In the case of Twelfth Finance Commission mean foregone
cost disabilities, the distinction between the revenues for the Centre.
general and special category states provides a
3.48 It has been argued that Non-Plan Revenue
macro-level recognition of this factor in the Deficit (NPRD) grants risk moral hazard by
normative assessment as well as in the allocation
providing an incentive to states to run non-plan
of general and state-specific grants. revenue deficits. Our analysis of the incidence of
3.46 Since the Commission is concerned with such grants does not seem to indicate that this is
equalisation, not equity, it is both feasible and true in the case of general category states. Only
possible to address efficiency and fiscal one state has received an NPRD grant from each
equalisation, using both instruments available and every Finance Commission, which, however,
to the Commission, viz. grants and devolution. has been declining absolutely and sharply in real
In the case of efficiency and performance, we terms since the award of FC-IX. While it is true
have made a special effort to address the that some states have received significant grants
concerns of some states regarding the from specific Commissions, there is no pattern
possibility of perverse incentives. The lack of showing increased inter-temporal recourse to
adequate data to design forward-looking such grants by general category states. In the
indicators has, perhaps, been the greatest case of special category states, cost disabilities
challenge in this endeavour. Despite this are such as to require the use of this instrument
constraint the Commission has sought to to address fiscal equalisation, on a case-by-case
explicitly recognise and give due weight to basis, much as envisaged by the Constitution, with
considerations of efficiency and performance in the need for such consideration diminishing as
its overall design. It should be pointed out that the development payback from special attention
the wider the differences over time in the to these states kicks in over time. In this
response to incentives to secure fiscal discipline, Commission’s award there has been a significant
the less likely will be the stability in inter se reduction in the volume and state-wise incidence
shares of the different states. Equally, states that of NPRD grants, which is to be expected, given
respond to incentives to maintain and enhance the structural improvements in the fiscal position
35
Thirteenth Finance Commission
of many states, including special category states. i.e., not be intrusive in the domain of decision
In the latter case, in recognition of the effort made making by the State Governments and local
to exit NPRD, we have, in fact, deemed it bodies. Our approach to setting conditionalities is
appropriate to acknowledge such achievement informed by three objectives:
with a performance incentive. In our view,
i) To ensure additionality of resources: Mindful
therefore, the need for NPRD grants diminishes
of the fungibility of resources, our objective is to
as structural fiscal reforms are implemented and
discourage the use of grants to substitute what a
economic performance improves and we expect
State Government is already spending on the
this welcome trend to continue.
purpose for which the grant is being given. Thus,
3.49 An important issue that arises when the overall result of the grant should be to reduce
considering the appropriate design of horizontal the deficit in resources to provide public goods.
distribution is whether to reward states for past ii) To improve transparency and accountability,
performance or incentivise states to improve thus enabling a ‘feedback’ route in improving
performance during the award period. It pertains policy formulation and implementation: If grants
more to criteria that seek to capture fiscal were to incentivise greater transparency and
discipline and fiscal effort. Of course, if criteria accountability in public spending, then they would
that reward are more or less consistent over time, improve the effectiveness of public expenditure
then these serve as incentives. For example, if it and targeting of public goods. Thus, the
is known that fiscal discipline will be: (i) given conditionalities should be viewed as incentives to
due weight and (ii) measured roughly in the same act and to improve the effectiveness of public
way over the next three Commission award expenditure. There is a general consensus in policy
periods, then this acts as a built-in incentive literature on Indian public expenditure that there
to states to design policies so as to accord with exists huge scope for doing this. Our approach, by
such incentives. improving accountability and outcome delivery
3.50 The major constraint in designing forward- consistent with our Terms of Reference, will
looking incentives is the availability of real time empower citizens as well as their elected
data on which to judge performance. The other representatives, including those at the municipal
constraint is the lack of an institutional ‘home’ within and panchayat levels.
which assessments of improvements in iii) To assist in better monitoring of expenditure:
performance can be judged and awards In designing the conditionalities/performance-
accordingly made. In the case of FRBM this task based incentives for various grants we have
was performed by the Ministry of Finance, taken sufficient care to not to be intrusive vis-à-
Government of India. The task was relatively simple, vis the administrative domain of the State
given that the data on adherence to benchmarks Governments. As these grants flow from the
was fiscal in nature and available expeditiously from public exchequer, the touchstone for the
the annual budgetary process. Milestones often proposed performance-based incentives/
involved discrete actions, such as passing a specific conditionalities is their potential for
legislation or setting up a specific fund. We have contributing towards better prudential
retained the forward-looking element in our design monitoring of these expenditures.
of grants and have sought to extend such, where
3.52 We have sought to incentivise different
feasible, to areas beyond the FRBM.
levels of government to adopt and undertake
3.51 Our recommendations regarding the green policy actions. Our approach has been to
principles for disbursement of different grants have use the grant instrument to foster such
a conditionality element. We have taken the incentives. In addition, we have also sought to
utmost care not to have intrusive conditionalities; discourage policy actions that distract from
36
Chapter 3: Issues and Approach
sustainable development, such as the fertiliser 3 . 5 7 Monitoring and evaluation to improve the
subsidy in the case of the Centre and power link between outputs and outcomes requires
subsidies in the case of the states. adequate data and statistical systems that allow
such monitoring and evaluation to be evidence
3.53 Our environmental grants both reward
based. We have, therefore, recommended a grant
past actions and incentivise future actions. The
for improving statistical systems at the district
forest grant that we recommend is essentially
and state level, that complements national level
a reward for contributing to the ecology and
initiatives to improve the quality, richness and
bio-diversity of India, as well as a compensation
reliability of national statistical systems.
to states for the opportunity loss on account of
keeping areas under forest. 3.58 In addition, we have consulted with the
3.54 A quantum increase in the supply of Department of Justice and State Governments on
electricity is a critical requirement for future appropriate fiscal incentives to assist the judicial
sustainable growth. It is desirable that this growth system to improve the speed and effectiveness
takes place in the greenest possible fashion, with of delivery of this critical public good and have
the maximum reduction in carbon intensity. We recommended a grant for the purpose. Likewise,
have, therefore, provided forward looking grants we have made state-specific grants to expand and
as an incentive to increase the share of electricity improve the training of police personnel.
generated from renewable sources. 3.59 Looking forward, we recognise that
3.55 During our visits to the states and to local improvement in governance is as much, if not
bodies it became apparent to us that improved more, about emulating historic best practice as
management of India’s water resources was an about innovating to deliver better. The President
imperative for sustainable, inclusive development. of India has declared the next ten years as the
With this in mind, another of our environmental ‘decade of innovation’, but innovation happens
grants incentivises the states to establish an not just in the laboratories, universities and
independent regulatory framework for the water cutting edge research institutions of our nation;
sector. We also expect a substantial increase in it also happens, as we have seen in our visits to
our grants to local bodies to be used by them to the states, in the districts, villages and towns of
mitigate their environmental challenges in areas India, where people innovate to perform and
such as water and solid waste management. deliver better in their day-to-day activities. We
are of the view that these innovations are the
3.56 There is a general consensus that India’s essence of the continual effort to improve
main development challenge is to improve governance and, therefore, need to be
governance and effectiveness of public recognised, rewarded and shared. To this end,
institutions. In responding to considerations in we have recommended the creation of a district
this area specified by the ToR, we have used grants
innovation fund to incentivise and recognise these
to incentivise state and local governments to
processes, at the levels of government closest to
demonstrably improve outcomes. We have
the ordinary citizen as well as a grant for the
focused on specific areas where such results might
establishment of a national Centre for
be achieved, with the hope that the
Innovations in Public Systems (CIPS).
demonstration effect will lead to all-round
improvements across the public service 3.60 Thus, our approach to governance has
delivering mechanism. Thus, we have proposed been to incentivise innovations, improvements
a forward looking grant that would reward states and outcomes in a selected number of areas in
for their public health efforts towards reduced which such improvements can be easily designed
infant mortality rates–one of the most important and recognised. We believe that this would spur a
MDGs. virtuous cycle of improvements in governance in
37
Thirteenth Finance Commission
every sphere of public activity by demonstrating number of states have notified transfer of
that such improvements are within the power of functions, but this has not been followed by
every civil servant and public agent, irrespective transfer of funds and functionaries. Only some
of their location and the challenges and constraints states have significantly empowered local bodies
within which they work. by transferring expenditure obligations, taxation
powers and staff resources to them. It has been
State-specific Grants: Approach contended that decentralisation is not fiscally
3.61 The Commission has recommended the neutral as it will generate increased demands in
award of state-specific grants following two broad the scope, scale and quality of services provided
priniciples. by the local bodies. Thus, more funds devolved
to local bodies would encourage State
i) Our field visits and discussions led us to Governments to accelerate their decentralisation
believe that even relatively small grants efforts. Transfer of functions and functionaries
have shown discernible results, provided may then follow transfer of funds.
that these were directed towards felt needs.
This was particularly true of sectors which 3.64 We have also noted that in recent times the
do not benefit from centrally sponsored local bodies have been entrusted with funds, often
programmes or where there are significant directly through Centrally Sponsored Schemes
funding gaps. (CSS) such as the National Rural Employment
Guarantee Scheme (NREGS) and Jawaharlal Nehru
ii) There is also a rationale for state-specific National Urban Renewal Mission (JNNURM),
grants where these address deprivation, which have stretched their already limited
generate significant externalities planning implementation and accounting
(especially environmental externalities), capacities. There is a felt need and demand for
meet the needs of the marginal groups or untied funds to augment local capacities, which
areas and encourage policy innovations. was communicated to us almost universally
across states during our visits.
Assignment of Resources to Local
Bodies: Issues 3.65 While the issue of providing additional
funding support to local bodies is significant, all
3.62 We consulted extensively with the building blocks of the third tier structure
representatives of both urban and rural local deserve attention. These include: (i) entrusting
bodies as well as representatives of autonomous local bodies with implementation and expenditure
district councils during our visits to all the states. responsibilities consistent with their mandate;
One issue raised uniformly by public (ii) enhancing their capacity to meet these
representatives was lack of funds to provide obligations through assigning necessary revenue
adequate levels of even basic services such as raising powers as well as providing adequate
drinking water, sewerage, solid waste transfers; (iii) making them accountable for their
management and street lighting to their citizens. performance, including delivery of services as per
This problem is intensified by the increasing pace previously notified standards; (iv) strengthening
of urbanisation as well as the rising cost of the functioning of the State Finance Commissions;
providing such services in rural areas. and (v) providing focussed support to the
3.63 The transfer of funds, functions and scheduled and excluded areas. The Eleventh and
functionaries to local bodies consistent with the Twelfth Finance Commissions made a number of
XI and XII Schedules of the Constitution has met recommendations in this regard. Some of these
with limited success so far. The traditional recommendations, though important, have not
theology that funds and functionaries will follow been implemented so far. More needs to be done
functions does not appear to have worked. A to promote decentralisation. We also need to put
38
Chapter 3: Issues and Approach
in place a stronger incentive mechanism aimed at action on the SFC recommendations; (c) the need
persuading State Governments to decentralise to ensure that SFC reports are synchronous with
further. Our analysis develops on the work already the report of the National Finance Commission;
done while attempting to identify (d) basis on which the grants would be divided
and address major challenges in achieving between rural and urban local bodies and
these objectives. (e) whether the Finance Commission’s
recommendations for augmenting the
3.66 Based upon our consultations, as well as
consolidated funds of the states should be made
the studies sponsored, the issues to be addressed
after considering the SFC reports, rather than on
by us were classified into four broad categories:
the basis of these reports.
i) Issues related to devolution: These include:
iv) Other related issues: (a) The role of
(a) The volume of support to local bodies and the
development authorities and how their
parameters that should be used for deciding
functioning can be made consistent with
interstate allocations; (b) the basis on which
schedules XI and XII; (b) treatment of ‘excluded’
grants are distributed between rural and urban
areas where parts IX and IX A of the Constitution
areas; (c) whether local bodies can be provided a
do not apply; (c) measures needed to enhance
share of the divisible pool instead of a grant;
the collection of property tax; (d) revamping of
(d) possibilities for using a devolution index;
fire services and (e) treatment of nagar
(e) how to prevent delays in transmission of funds
panchayats.
to local bodies and (f) whether the use of
conditionalities is advantageous.
Assignment of Resources to Local
ii) Issues relating to preparation of accounts and Bodies: Approach
audit: The generation of credible data on the
3.67 In the light of past experience, we have
performance of local bodies is essential for any
adopted a platform-based incentive approach to
meaningful analysis of their financial and
determine the volume of local body grants to be
operational performance. Presently, the lack of
provided to each state. Following previous
audited comparable data across local bodies
Commissions, we will continue to provide for a
limits their effective utilisation by State Finance
grant to all the states for meeting the needs of the
Commissions and prevents comparability across
local bodies for the period 2010-15. In addition,
states. The issues which we examine include: (a)
we have sought to incentivise devolution and
uniformity and consistency in the accounts of
performance through the introduction of a
urban and rural local bodies; (b) a uniform audit
performance-based component which will be
procedure for all states in the country to ensure
available only to those states which meet the
comparability and (c) accountability of local
stipulations related to the issues identified above
bodies through appropriate mechanisms.
by 2011-12. The year 2010-11 will be available
iii) Issues relating to the functioning of State for states to meet these stipulations. In our view,
Finance Commissions: The State Finance this time is adequate. States which are unable to
Commissions, which buttress the functioning of do so, but meet these stipulations in subsequent
local bodies, need to be strengthened, their years, will be eligible for grants prospectively.
functioning made more predictable and the
3.68 We have kept the performance grant at an
process of implementing their recommendations
appropriately high level so as to strongly motivate
made more transparent. To enable this, the issues
states to meet these conditionalities. The
to be addressed include: (a) the need to ensure
conditionalities imposed by us are not novel. They
that SFC reports across states are adequately
have been examined and recommended by a
analytical and similar in approach; (b) the need
number of bodies including earlier Finance
to ensure that State Governments take prompt
39
Thirteenth Finance Commission
Commissions, the Second Administrative Reforms local bodies, ensuring predictability and
Commission (SARC), the Comptroller and Auditor transparency in transfer of funds and enhancing
General (C&AG) and the respective ministries of the functioning of State Finance Commissions. A
the Government of India. They are aimed at number of states are already in compliance with
inducing change to improve the functioning of some of these conditionalities.
40
CHAPTER 4
Review of Union and State Finances
41
Thirteenth Finance Commission
Employment Guarantee Scheme (NREGS). revenue and fiscal deficits, the Central Government
Implementation of the recommendations of the Sixth enacted the FRBMA in 2003, which was brought into
Central Pay Commission (CPC) by the Centre, farm force from 5 July 2004. In addition to stipulating
debt waiver and additional provision of funds for food ceilings on fiscal indicators, the legislation laid down
and fertiliser subsidies have added to the fiscal burden. fiscal management principles combining fiscal
These additional commitments, though not a part of transparency, budget integrity and accountability.
the stimulus, have, nevertheless, served as fiscal The main obligations of the Centre under the FRBMA
stimulus to the economy. Collectively, these have 2003 and FRBM Rules 2004, as amended through
meant a ‘pause’ in the implementation of the FRBMA the Finance Act, 2004 are as follows:
by the Centre. The states, too, have been allowed a
i) Eliminating revenue deficit by 2008-09 by
relaxation in their fiscal and revenue deficit targets.
ensuring a minimum annual reduction of 0.5
4.4 The current expansionary fiscal stance must per cent of GDP every year from 2004-05.
also be seen against the requirement in our Terms
ii) Reducting fiscal deficit by at least 0.3 per
of Reference (ToR) that we consider the need to
cent of GDP annually from 2004-05, so that
improve the quality of public expenditure to obtain
fiscal deficit is reduced to no more than 3
better outputs and outcomes while formulating our
per cent of GDP at the end of 2008-09.
recommendations. Increased expenditure by the
government must also lead to superior outcomes iii) Limiting government guarantees to 0.5 per
through higher productivity, enhanced efficiency cent of GDP in any financial year and limiting
and greater effectiveness. While equity additional liabilities to 9 per cent of GDP in
considerations have dominated the devolution 2004-05 and thereafter reducing the limit
debate in the past, recent Finance Commissions of 9 per cent by one percentage point of GDP
have also incorporated the efficiency criterion in in each subsequent year.
their recommendations. This has, however, mostly iv) Central Government not to borrow from the
been linked to raising of revenue and the extent of Reserve Bank of India from 2006-07.
fiscal correction undertaken. Taking this initiative
forward, linking efficiency and effectiveness of v) Disclosing specified information, such as
public expenditures to the quality of service delivery arrears of revenue, government assets and
and achievement of desirable outcomes remains a guarantees, latest from 2006-07.
major challenge. vi) Undertaking quarterly review of receipts
4.5 Aganist the above backdrop, we analyze and and expenditure.
examine below the trends in the finances of the 4.7 Table 4.1 presents a profile of the fiscal
Centre and states as a prelude to the formulation of indicators of the Central Government from 2003-04
our views on the vertical and horizontal distribution onwards. Originally, the FRBMA mandated that the
of resources. revenue deficit should be eliminated and fiscal deficit
contained at 3 per cent of GDP by March 2008. In
Review of Central Finances 2004, the target was shifted to March 2009 by an
4.6 In the first instance, aggregate trends in amendment of the Act. The annual deficit reduction
central finances are analyzed in terms of deficit targets could not be adhered to in 2005-06 as the
indicators. These are revenue, fiscal and primary Centre pressed the ‘pause button’ to accommodate
deficits. Deficits matter as they signal the impact of the higher transfers recommended by FC-XII. The
changes in public finances on debt sustainability. As revenue deficit of the Centre declined to 1.11 per cent
the fiscal indicators will be analyzed in relation to of GDP in 2007-08, its lowest level since 1990-91. In
the targets set under the FRBMA, a brief description 2008-09, there was a total reversal of fiscal
of the FRBMA is in order. Faced with persistent fiscal correction with the revenue deficit reaching a level
problems, manifested in the form of increasing of 4.53 per cent of GDP. The Union Budget for
42
Chapter 4: Review of Union and State Finances
2009-10, which was formulated against the backdrop highest in the post-reform period. Primary deficits
of the global downturn and subdued domestic demand, add to the debt-GDP ratio unless GDP growth is
envisaged a revenue deficit of 4.83 per cent of GDP. higher than the interest rate on public debt.
4.8 The fiscal deficit of the Centre declined from 4.10 The ratio of revenue deficit to fiscal deficit,
4.48 per cent of GDP in 2003-04 to 2.69 per cent in which indicates the extent to which borrowings are
2007-08, the lowest since 1990-91.There was a used to meet current expenditure, declined from
reversal of the declining trend in 2008-09, with the nearly 80 per cent in 2003-04 to 41.42 per cent by
fiscal deficit ballooning to 6.14 per cent of GDP. For 2007-08. However, this proportion went back to
2009-10, it has been budgeted at 6.85 per cent of nearly 74 per cent in 2008-09 (RE). Thus, a review
GDP. The reasons for the reversal of fiscal correction of the fiscal situation reveals that all fiscal indicators,
in 2008-09 have been alluded to in Para 4.3. The after registering an improvement in the years
reversal of fiscal correction was not entirely on following the enactment of the FRBMA, have
account of the fiscal stimulus measures. Pay witnessed sharp deterioration in 2008-09 and
revision, farm debt waiver and additional 2009-10. The Union Government has expressed its
expenditure on food and fertiliser subsidies have intention to return to the FRBM path of fiscal
added substantially to the fiscal burden. Much of correction at the earliest, as soon as the negative
the deterioration in fiscal indicators observed in effects of the global crisis on the Indian economy have
2008-09 was on account of these additional been overcome. We have been asked to revisit the
expenditure commitments. The EAC, in its roadmap of fiscal adjustment and suggest a suitably
Economic Outlook for 2009/10, has placed the revised roadmap factoring in the need to bring the
deficit on account of reduction in tax revenue due liabilities of the Central Government on account of
to economic slowdown as well as the tax cuts in oil, food and fertiliser bonds into fiscal accounting
excise and service taxes effected as part of the fiscal as well as the impact of various other obligations on
stimulus at about 1 per cent of GDP. The fiscal deficit deficit targets with a view to maintaining the gains
figures presented in Table 4.1 do not take into of fiscal consolidation through 2010-15.
account the off-budget bonds issued to the oil
4.11 Table 4.2 shows the sources of correction in
marketing and fertiliser companies amounting to
central finances between 2003-04 and 2007-08.
Rs. 95,942 crore or 1.8 per cent of GDP in 2008-09.
Between 2003-04 and 2007-08, the revenue deficit
4.9 The primary balance which turned into a of the Centre declined by 2.46 percentage points of
marginal surplus in 2003-04 continued to remain GDP. Much of this decline came from an improvement
in surplus till 2007-08 with the exception of in tax revenues. The marginal decline in revenue
2005-06. The year 2008-09 witnessed a sharp expenditure of the Centre was entirely on account of
increase in primary deficit to 2.51 per cent of GDP. the decline in interest payments following softer
It is budgeted at 3 per cent of GDP in 2009-10, the interest rates. What also contributed to the reduction
43
Thirteenth Finance Commission
in fiscal deficit was compression of capital introduced the Market Stabilisation Scheme (MSS)
expenditure. Thus, the fiscal correction at the Centre in consultation with the RBI in April 2004. Under the
was largely on account of revenue augmentation and scheme, the Government of India raises money
partly on account of capital expenditure compression. through the issue of dated securities/treasury bills to
4.12 The outstanding liabilities of the Central absorb excess liquidity in the market on account of
Government, after reaching 63.33 per cent of GDP foreign inflows. The amount so raised was to be kept
in 2004-05, started declining consistently (Table in a separate account with the RBI and was not meant
4.3). This is because an economy can maintain a to meet the expenditure needs of the government.
stable debt-GDP ratio and incur a primary deficit as Despite a sharp increase in the fiscal deficit in the years
long as the average nominal interest rate on debt is 2008-09 and 2009-10, a marginal decline in the ratio
lower than the nominal GDP growth rate. This decline of outstanding debt to GDP is projected even in these
occurred even though a new component had been two years.
added to internal debt in 2004-05, which is not 4.13 Among the components of outstanding debt,
reflected in the fiscal deficit. The Government of India there is an increase in the share of internal debt.
44
Chapter 4: Review of Union and State Finances
Because of the developments unfolding since the be attributed substantially to improvement in tax
global crisis, the Centre increased its net market compliance following the institution of the Tax
borrowings sharply, from Rs. 1,31,768 crore in Information Network (TIN) and its
2007-08 to Rs. 2,61,972 crore in 2008-09 and implementation by the National Securities
further to Rs. 3,97,957 crore in the budget Depository Ltd (NSDL). According to the report
estimates for 2009-10. Following the global of the Comptroller and Auditor General of India
downturn, the Memorandum of Understanding (C&AG), in 2002-03 almost 80 per cent of the
(MoU) signed with the RBI was amended in assessees for tax deduction at source (TDS) did
February 2009 to allow a part of the amount in not file returns. With the setting up of the TIN in
the MSS account to be transferred to the January 2004, tax compliance has gone up
Consolidated Fund of India as part of the significantly.
government’s normal market borrowing
programme. Following this, an amount of Rs. 4.15 The gross tax-GDP ratio went up by over
12,000 crore was transferred from the MSS three percentage points in a span of four years, from
account to the Consolidated Fund of the Centre in 9.23 per cent in 2003-04 to 12.56 per cent in 2007-
March 2009. A further amount of Rs. 28,000 crore 08 (Table 4.4). The entire improvement came from
raised through MSS was de-sequestered in May the buoyancy of direct taxes, more particularly from
2009. corporation tax, reflecting the increasing
profitability of the Indian corporate sector. In fact,
Gross Tax Revenues of the Centre indirect tax-GDP ratio has remained stagnant
between 5 and 6 per cent since the late nineties.
4.14 Higher GDP growth coupled with better tax
administration and introduction of new taxes such 4.16 As a result of the higher growth of direct
as the ‘fringe benefit tax’, has resulted in higher taxes, there has also been a shift in the composition
growth of tax revenues, particularly from 2004- of gross tax revenues of the Centre. For the
05. The high buoyancy of direct tax revenues may first time in the history of public finances of the
45
Thirteenth Finance Commission
country, direct taxes have overtaken indirect tax Trends in Non-tax Revenues
collections in the year 2007-08. This is a healthy 4.18 Non-tax revenue of the Centre mainly
development as direct taxes are more progressive comprises interest receipts, dividends and profits
than indirect taxes. From less than 20 per cent from public sector undertakings including banks,
share in total tax revenues in 1990-91, the share of and receipts from economic services. Non-tax
direct taxes has increased to over 55 per cent in 2008- revenues as a percentage of GDP have declined
09. Figure 4.1 shows the trends in growth of direct from 2.79 per cent in 2003-04 to 1.81 per cent in
and indirect taxes as a proportion of GDP. 2008-09 (Table 4.2). The decline is mainly on
4.17 Within direct taxes, the share of account of lower interest receipts from the states
corporation tax has increased from 24.99 per cent due to termination of the practice of on-lending
of gross tax revenue in 2003-04 to 35.35 per cent to states, and interest relief as a result of the DCRF
in 2008-09, an increase of over 10 percentage following the recommendations of FC-XII. The
points. The share of income tax in gross tax debt swap scheme under which the states swapped
revenue of the Centre witnessed a marginal their high-cost outstanding debt to the Centre with
increase from 16.27 per cent to 17.20 per cent in low-cost market borrowings during 2002-05 also
the same period. In the case of indirect taxes, partly resulted in lower interest payments by the
while the share of custom duties in gross tax states. The share of interest receipts in the
revenue declined marginally by nearly two non-tax revenues of the Centre declined from over
percentage points between 2003-04 and 50 per cent in 2003-04 to less than 20 per cent in
2008-09, the share of Union excise duties 2008-09. Now the predominant share in non-tax
witnessed a sharp decline of over 18 percentage revenues is accounted for by dividends and profits
points. The sharp decline in the share of Union and economic services. The non-tax revenue-GDP
excise duties was largely on account of rate cuts, ratio is budgeted to increase to 2.40 per cent in
and in recent years, on account of the slowdown 2009-10. The bulk of improvement in this ratio
in the growth of the manufacturing sector. The is expected from the communication sector
share of indirect taxes would have fallen further through the sale of 3-G spectrum. Exploitation
but for the buoyant revenue from service tax. of offshore oil and gas reserves is likely to further
Service tax improved its share from 3.10 per cent contribute to improvement in the non-tax
in 2003-04 to 10.35 per cent in 2008-09. The revenues of the Centre.
increase in the share of service tax was on account
of an increase in both coverage as well as tax rates. Trends in the Centre’s Expenditure
4.19 After registering a significant fall from 17.11
Figure 4.1: Centre’s Tax-GDP Ratio: Direct, per cent of GDP in 2003-04 to 14.13 per cent of
Indirect and Total (1970-71 to 2009-10 (BE))
GDP in 2006-07, total expenditure of the Central
Government rose to a level of 16.93 per cent of GDP
in 2008-09. The fall in the ratio of total
expenditure to GDP came mostly from a reduction
in capital expenditure. Capital expenditure of the
Centre, which declined from 3.96 per cent of GDP
in 2003-04 to 1.67 per cent of GDP in 2006-07,
rose to 2.50 per cent of GDP in 2007-08 (Table
4.5). This improvement was mainly the result of
an increase in the non-plan capital outlay to
acquire RBI’s stake in the State Bank of India.
Thereafter, capital expenditure declined to about
2 per cent of GDP in 2008-09.
46
Chapter 4: Review of Union and State Finances
4.20 Expenditure on interest payments, defence, receipts. Food subsidy is the difference between the
pay and allowances and subsidies are the main procurement prices and carrying costs of food
components of the Centre’s revenue expenditure, grains and the issue price for the public distribution
accounting for about 63 per cent of the total. While system. Expenditure on food subsidy as a
the proportion of expenditure on interest payments proportion of total revenue receipts of the Centre
to GDP has shown a marginal decline because of the witnessed some moderation between 2004-05 and
low interest rate regime, expenditure on defence has 2006-07. However, thereafter there was a steep rise
remained at more than 2 per cent of GDP in almost in the food subsidy to Rs. 43,627 crore in 2008-09
all the years since 2003-04. Expenditure on pay and from the previous year’s level of Rs. 31,328 crore.
allowances of Central Government employees This increase was on account of the increase in the
excluding defence personnel, after moderating from minimum support prices of food grains as well as
1.21 per cent of GDP in 2003-04 to 0.97 per cent of the quantum of food grains procured. Procurement
GDP in 2007-08, jumped to 1.33 per cent of GDP in of rice went up from 26.3 million tonnes in
2008-09 and is estimated to go up even further to 2007-08 to 32.8 million tonnes in 2008-09, while
1.50 per cent in 2009-10, the highest since 2000-01. that of wheat more than doubled from 11.1 million
The increase in the ratio of pay and allowances is tonnes to 22.7 million tonnes in the corresponding
mainly due to the implementation of the period. Further, procurement and carrying costs
recommendations of the Sixth CPC and payment of have increased, but the issue price has remained
40 per cent of the arrears in 2008-09 and 60 per unchanged since 1 July 2002. These developments
cent in 2009-10. Expenditure on pay and allowances were reflected in the increase in expenditure on food
may moderate in the coming years with the tapering subsidy from 5.78 per cent of total revenue receipts
off of the effect of payment of arrears. of the Centre in 2007-08 to 7.76 per cent in
2008-09. It is budgeted to go up further to 8.54 per
4.21 Expenditure on explicit subsidies is the third
cent of revenue receipts in 2009-10. Andhra
largest item of revenue expenditure after interest
payments and defence. Food and fertiliser subsidies
Table 4.6: Explicit Subsidies Relative to the
are the main explicit subsidies provided by the Centre. Centre’s Revenue Receipts
Though the administered price mechanism for (per cent)
petroleum products was dismantled, explicit subsidies Year Food Fertiliser Others Total
are provided in the Central Budget for kerosene and 2003-04 9.55 4.49 2.77 16.80
cooking gas. Explicit subsidies as a proportion GDP, 2004-05 8.43 5.19 1.40 15.02
after moderating from 2004-05 to 2007-08, have been 2005-06 6.67 5.34 1.73 13.74
2006-07 5.53 6.04 1.59 13.15
rising since then due to the firming up of commodity
2007-08 5.78 6.00 1.31 13.09
prices, particularly those of food, fuel and fertiliser. 2008-09 (RE) 7.76 13.49 1.74 22.99
2009-10 (BE) 8.54 8.13 1.43 18.11
4.22 Table 4.6 presents trends in major explicit
Source : Basic data from Central Budget documents
subsidies as a proportion of the Centre’s revenue
47
Thirteenth Finance Commission
Pradesh, Haryana, Punjab and Uttar Pradesh together This was followed by a sharp increase in the price
accounted for 69.5 per cent of the rice procured in the of crude to US $147 per barrel in July 2008. Linked
Kharif season 2007-08, while Haryana and Punjab with this increase in crude prices there was also a
alone accounted for 91.1 per cent of wheat procured significant increase in the prices of fertiliser
in the Rabi season of 2007-08. imports. In order to partly compensate the oil
marketing companies selling petroleum products at
4.23 The second largest explicit subsidy is that
government determined prices, the Centre has
on fertilisers, which was in the range of 5-6 per
started issuing bonds to oil companies. The value
cent of revenue receipts between 2004-05 and
of oil bonds, which amounted to about 0.50 per cent
2007-08, but shot up to 13.49 per cent in 2008-
of GDP in the years 2005-06 to 2007-08, has shot
09. In absolute terms, fertiliser subsidy increased
from Rs. 32,490 crore in 2007-08 to Rs. 75,849 up to 1.43 per cent of GDP in 2008-09. Oil bonds
crore in 2008-09. The subsidy is designed to do not fully reflect the extent of subsidy on
provide fertilisers to farmers at a fixed maximum petroleum products. Upstream oil companies and
retail price (MRP), a price that is administratively oil marketing companies share a part of the
set, and varies by the type of fertiliser. This under-recoveries on petroleum products. The
dispensation has completely discouraged fresh practice of issuing off-budget bonds to fertiliser
investment in indigenous production of fertilisers, companies started in 2007-08. Fertiliser bonds as
and the cost-plus formula carries little incentive a percentage of GDP increased from 0.16 per cent
for improved production efficiency. Stagnant of GDP in 2007-08 to 0.38 per cent of GDP in 2008-
domestic production has resulted in increasing 09. Taking into account the off-budget bonds issued
import dependence over time. India, as a major to oil marketing and fertiliser companies and to
importer with a commitment to providing other institutions, the augmented revenue and fiscal
subsidised fertiliser at a fixed price, has in turn, deficit would work out to 6.34 and 7.99 per cent of
been at the mercy of an international fertiliser GDP, respectively, in 2008-09.
oligopoly. The subsidy has risen explosively 4.25 A study sponsored by us and carried out by
because the subsidised price has not been revised the National Institute of Public Finance and Policy
since 2001, whereas the prices of inputs into (NIPFP) shows the regressive nature of all major
fertiliser production as also of fertiser imports, explicit subsidies on food, fertiliser and petroleum
have risen substantially, exacerbated by the products. Per capita explicit subsidies received in
adverse international market structure. Further, the poorer states of Bihar, Jharkhand, Madhya
despite the rising subsidy bill, use of fertilisers has Pradesh, Orissa and Uttar Pradesh are found to
not brought about a commensurate increase in be much lower as compared to the average for all
agricultural productivity. On the contrary, the states. Despite inherent defects in the subsidy
price pattern has had a distortionary impact on the regime, reforms have remained a major policy
pattern of nutrient application, resulting in challenge. Subsidies differ from other components
declining fertiliser response ratios. of public expenditure, which target provision of
4.24 The explicit subsidies reported in the budget public goods like defence. Subsidies variously
of the Central Government do not include support private consumption and/or production
off-budget bonds issued to oil marketing and inputs in a manner such that their incidence is
fertiliser companies. Though the administered price difficult to quantify. Unless the subsidies are
mechanism for petroleum products was pruned and better targeted, investment in public
discontinued, there is still no deregulation of infrastructure will suffer. As regards oil subsidy,
petroleum product prices. International price of continuation of the present system of insulating
crude increased from an average of US $38 per domestic consumers against rising international
barrel in 2004 to US $54 per barrel in 2005, and prices will be a drag on the fiscal situation of the
further to US $70 per barrel in April-June, 2006. country and goes against the tenets of conservation.
48
Chapter 4: Review of Union and State Finances
49
Thirteenth Finance Commission
this condition was imposed by FC-XII. West Bengal 2004-05. The fiscal deficit declined significantly
and Sikkim are the only states which are yet to do from 3.40 per cent in 2004-05 to 1.51 per cent of
so. The enactment of FRL brought an element of GDP in 2007-08. The primary balance also turned
discipline into budget-making by the states. Another surplus in 2006-07 from a deficit of 0.65 per cent of
major development having a considerable bearing GDP in 2004-05. The surplus on the revenue account
on improvement of state finances was the provided more fiscal space to states to enhance their
introduction of VAT by most states in 2005-06. This capital spending. In line with other fiscal indicators,
has improved the tax base of the states by replacing the debt-GDP ratio too exhibited a declining trend.
the single point sales tax previously in place.
4.29 Factors contributing to the fiscal correction
Trends in Aggregate Fiscal Indicators by states are presented in Table 4.8. There was
significant improvement in total revenue receipts
4.28 Aided by buoyant own revenues and central
of states by 1.71 percentage points of GDP, between
transfers following the higher growth of the economy,
there was consistent improvement in almost all fiscal 2004-05 and 2007-08. While all the components
indicators of states from 2004-05 to 2007-08 (Table of revenue receipts contributed to this
4.7). The revenue account of states turned surplus improvement, the primary contributors are
in 2006-07 from a deficit of 1.25 per cent of GDP in transfers from the Centre followed by own tax
50
Chapter 4: Review of Union and State Finances
revenues. During this period, revenue expenditure registering a surplus in the preceding three years.
declined by 0.47 per cent of GDP largely on The aggregate fiscal deficit of states is budgeted
account of decline in interest payments by 0.63 to increase further to 3.23 per cent of GDP in
per cent of GDP. Thus, as in the case of the Centre, 2009-10, close to the level obtaining in 2004-05.
aggregate fiscal improvement at the level of the The primary balance of states, which remained in
states was mainly revenue-led, particularly surplus in 2006-07 and 2007-08, turned into a
through transfers from the Centre. Central deficit of 0.68 and 1.28 per cent of GDP in
transfers to states will be much higher than those 2008-09 (RE) and 2009-10 (BE), respectively.
reported in Table 4.8 if the benefit of the DCRF
recommended by FC-XII is taken into account. Trends in Aggregate Revenues of States
Under the DCRF, central loans amounting to 4.31 There was improvement in all the
Rs. 1,13,601 crore have been consolidated and an components of revenue receipts of states between
amount of Rs. 18,717 crore has been written off by 2004-05 and 2007-08. Own tax revenues as a
the end of 2008-09. Interest relief obtained by proportion of GDP improved from 5.78 per cent in
states amounted to Rs. 15,689 crore in the four-year 2004-05 to 6.07 per cent in 2007-08, the highest
period 2005-09. so far (Table 4.9). Non-tax revenues improved,
4.30 As part of its countercyclical measures in albeit sluggishly, from 1.47 per cent to 1.63 per cent
the wake of the global economic downturn, the in the same period. Share in central taxes, which
Centre had raised the market borrowing limit of had improved considerably following the
states by Rs. 30,000 crore in 2008-09 and allowed recommendations of FC-XI, further improved in the
them to exceed their fiscal deficit target by 0.50 award period of FC-XII. Share in central taxes as a
percentage points, to 3.5 per cent of GSDP in percentage of GDP went up from 2.49 per cent in
2008-09. The fiscal deficit target was further 2004-05 to 3.22 per cent in 2007-08.
raised to 4 per cent of GSDP in 2009-10. The target 4.32 An area of concern for states in the sharing
for elimination of the revenue deficit was shifted of net central tax revenue is the sharp increase in
by a year to 2009-10. The revised estimates of the proportion of cesses and surcharges in the gross
2008-09 and budget estimates for 2009-10 tax revenue of the Centre, from 3.51 per cent in
indicate deterioration in the aggregate finances of 2001-02 to 13.63 per cent in 2009-10 (BE). This has
states owing to lower growth of own revenues and considerably reduced the proportion in gross tax
transfers from the Centre on one hand, and revenue of the Centre of net tax revenues shareable
increase in revenue expenditure on the other. The with states.
revenue surplus of states declined from 0.94 per
cent of GDP in 2007-08 to 0.27 per cent in 2008- 4.33 The second issue with regard to sharing of
09 (RE). Fiscal deficit increased by 1.13 per cent central taxes relates to the actual share in the net
to 2.64 per cent of GDP in 2008-09. The revenue tax revenue of the Centre devolved to states.
account of states is estimated to turn into a deficit Following the 80th Amendment of the Constitution
of 0.50 per cent of GDP in 2009-10 (BE) after facilitating sharing of the net proceeds of all central
51
Thirteenth Finance Commission
taxes, FC-XI and FC-XII recommended that the revenue foregone as a result of tax concessions. Loss
share of states in the net proceeds of central taxes of revenue on account of tax concessions in respect of
be fixed at 29.5 per cent and 30.5 per cent, both direct and indirect taxes is estimated at
respectively. However, the actual shares devolved Rs. 4,18,0951 crore for the year 2008-09. The National
to states as per the finance accounts have been lower Institute of Public Finance and Policy (NIPFP) study
than the percentages recommended by these for the Commission has allocated revenue foregone
Commissions. The actual shares devolved to states on account of select exemptions and tax preferences,
in 2005-06, 2006-07 and 2007-08, the first three accounting for 65 per cent of tax expenditures in direct
years of FC-XII award for which finance accounts taxes and about 18 per cent of those reported in the
are available, amounted to 29.36, 28.95 and 29.64 receipts budget for excise duty across states, based on
the estimated shares of individual states. The study
per cent of net shareable tax revenues of the Centre,
shows that Himachal Pradesh and Uttarakhand are
respectively. The Ministry of Finance has explained
far ahead of other states in terms of per capita gain
that the amounts reported in the Union finance
from tax expenditures because of area exemptions.
accounts do not fully cover the actual collections
Excluding area-based exemptions, Karnataka emerges
under cesses and surcharges and that after
at the top with a per capita gain of Rs. 922, followed
accounting for these, the releases to states are in
by Haryana and Goa with a per capita benefit of
alignment with their share in net central taxes as Rs. 700 each. The per capita benefit is much lower for
recommended by the Finance Commissions. We are the poorer states. This raises the question about the
of the view that there is a need for more rationale for continuing with tax exemptions involving
transparency in the current procedure. We, huge revenue losses and disproportionate benefit
therefore, recommend that this matter be looked derived by the relatively developed states. There is a
into by the Ministry of Finance with a view to strong case for phasing out many of the tax
ensuring that finance accounts fully reflect the exemptions. This should happen in the normal
collections under cesses and surcharges under course with the proposed introduction of Goods and
relevant heads, so that there are no inconsistencies Services Tax (GST).
between the amounts released to states in any year
4.35 Among the other components of revenue
and the respective percentage shares in net central
receipts, improvement in plan and non-plan grants
taxes recommended by Finance Commission for
was 0.26 and 0.28 percentage points of GDP,
that year. respectively between 2004-05 and 2007-08. Taking
4.34 Another area of concern is the tax concessions all the components together, the revenue receipts
extended by the Centre. In the interests of of all states increased from 11.49 per cent in
transparency, the Central Budget reports figures of 2004-05 to 13.20 per cent of GDP in 2007-08.
1
The estimates of tax expenditures are based on short term impact analysis assuming that the underlying tax base would not be affected by the removal
of tax exemptions and that all other tax provisions would remain unchanged. These assumptions may not hold good in all cases. Thus, the estimates of
tax expenditure are subject to a number of limitations and can only be taken as indicative. Furthermore, in the case of customs, the duty foregone is
estimated as the difference between the collection rate and the enacted rate, even when the latter might have been substantially reduced by an
administrative notification.
52
Chapter 4: Review of Union and State Finances
53
Thirteenth Finance Commission
Rs. 1,12,723 crore and constituted 60 per cent of along with increasing expenditure
the total outstanding guarantees of all states at the commitments on account of pay revisions
end of March 2008. As per the information received are likely to pose a threat to the fiscal
from states, dividend and interest payments by correction achieved so far.
PSUs amounted to Rs. 167.41 crore and Rs. 1684.97
crore, respectively in 2007-08. While dividend State Finances: A
amounted to 0.18 per cent of equity, interest Comparative Perspective
payments amounted to 0.99 per cent of the 4.42 Improvement in the various fiscal indicators
outstanding loans. These percentages are abysmally has not been uniform across states (Table 4.11). In
low and nowhere near the desired levels of 5 per 2004-05, among the general category states,
cent return on equity and 7 per cent interest on revenue accounts of only four states—Bihar,
outstanding loans suggested by FC-XII. Chhattisgarh, Karnataka and Madhya Pradesh—
were in surplus. By 2007-08, revenue accounts of
Summary all states, with the exception of Kerala, Punjab and
4.41 The main trends in the aggregate position of West Bengal, turned surplus. Thus, in all but three
state finances can be summarised as follows: general category states, elimination of the revenue
deficit was achieved one year ahead of the target
i) There was considerable improvement in the
year of 2008-09 prescribed by FC-XII. In the
aggregate finances of states following higher
special category, five states were in revenue deficit
growth of own tax revenues and increased
in 2004-05, but by 2006-07, the revenue accounts
transfers from the Centre. The revenue
of all turned surplus and remained so in 2007-08.
account of states turned surplus in 2006-07
The revenue surplus in many of the special category
and continued to remain in surplus in
states was of a higher magnitude relative to their
2007-08. This is ahead of the target date of
respective GSDPs as compared to those in the
2008-09 recommended by FC-XII. The
general category. The higher revenue surplus in
process of fiscal consolidation in states was
these states is indicative of the higher revenue
helped in no small measure by the enactment
account transfers to these states. Central transfers
of FRBMA by most states by bringing in rule
account for over 70 per cent of the revenue receipts
based management of public finances. of special category states.
ii) There was only a marginal reduction in the 4.43 With surpluses on the revenue account, the
revenue expenditure of states. Reduction in fiscal deficits of states went into financing capital
interest payments as a proportion of GDP was expenditure. This marks the qualitative dimension
higher than reduction in revenue expenditure. in the fiscal correction achieved by states. There
iii) Subsidies by states to power and irrigation was also significant quantum correction. Eleven
sectors, both explicit and implicit, are a big of the 17 general category states had fiscal deficits
drag on the finances of states. The exceeding 3 per cent of GSDP in 2004-05. This
performance of state level PSUs continues number came down to just five in 2007-08. These
to remain poor. five states were Goa, Kerala, Punjab, Uttar Pradesh
and West Bengal. Of these, two had a revenue
iv) One noteworthy development was the
surplus in 2007-08. Thus, fiscal correction
increase in the aggregate capital expenditure
was largely achieved much before 2008-09, the
of states following reduction in revenue
target year for containing the fiscal deficit at 3 per
expenditure and the surplus on the revenue
cent of GSDP.
account.
4.44 Among the 11 special category states, only
v) The expected reduction in the growth of
four (Jammu & Kashmir, Mizoram, Nagaland and
own revenue receipts and central transfers,
Uttarakhand) had fiscal deficits exceeding 3 per cent
54
Chapter 4: Review of Union and State Finances
Arunachal Pradesh 0.27 -6.23 -20.44 -18.57 -18.84 13.54 8.80 -3.14 0.24 -13.29
Assam 0.56 -2.61 -3.47 -3.66 -4.22 3.92 -0.62 -1.12 -1.12 -5.04
Himachal Pradesh 5.02 -0.36 -0.67 -2.66 -7.68 7.85 2.83 3.25 1.73 -6.12
Jammu & Kashmir -2.32 -1.49 -1.96 -3.42 -1.10 6.86 9.96 6.65 8.38 1.52
Manipur -2.00 -7.98 -8.39 -21.31 -19.31 9.84 5.36 8.89 -1.79 -11.63
Meghalaya 0.86 -1.15 -3.37 -2.47 -3.33 5.39 2.83 1.07 2.82 -2.58
Mizoram -4.33 -2.43 -8.43 -3.99 0.34 9.59 14.71 6.40 11.91 2.32
Nagaland -2.90 -3.65 -8.62 -5.89 -2.99 4.08 5.41 2.44 5.52 1.44
Sikkim -10.54 -10.75 -11.06 -14.91 -4.37 11.58 8.13 4.68 2.73 -8.85
Tripura -4.75 -6.74 -8.27 -8.04 -3.29 2.90 1.17 -1.28 0.14 -2.75
Uttarakhand 4.01 0.28 -3.02 -1.87 -5.88 9.19 7.18 2.98 5.12 -4.07
Total: SCS 0.63 -2.17 -3.78 -4.35 -4.98 6.30 3.86 2.01 2.46 -3.84
All States 1.56 0.24 -0.90 -1.20 -2.76 4.24 3.23 2.14 1.93 -2.31
Notes: 1. The fiscal indicators presented in Tables 4.11 to 4.14 are based on non-comparable estimates of GSDP and do not tally with those given in
Chapter 9 which are based on comparable estimates of GSDP.
2. The ratios presented in Tables 4.11 to 4.14 are relative to GSDP of states and therefore do not match with those in Tables 4.7 and 4.8, which
are relative to GDP. The aggregate ratios given in Tables 4.11 to 4.14 can be converted into ratios with reference to GDP by multiplying them
with the conversion factors of 0.8024, 0.7930, 0.7889 and 0.7821 for the years 2004-05, 2005-06, 2006-07 and 2007-08, respectively.
3. GCS: General Category States; SCS: Special Category States.
Source: Basic data from State Finance Accounts
55
Thirteenth Finance Commission
Figure 4.2: Reduction (+) in Revenue Deficits in Figure 4.3: Reduction (+) in Revenue Deficit
General Category States : 2007-08 over 2004-05 in Special Category States: 2007-08 over 2004-05
Difference (per cent of GSDP)
56
Chapter 4: Review of Union and State Finances
and Tripura. As in the case of the general category viz., Bihar, Rajasthan, Uttar Pradesh and West Bengal.
states, transfers from the Centre have played a Among these, Uttar Pradesh, and West Bengal have
major role in fiscal correction. fiscal deficits exceeding 3 per cent of GSDP. Bihar,
4.46 The debt-GSDP ratio represents the final though a revenue surplus state, had the highest
outcome of all the budgetary transactions, particularly debt-GSDP ratio in 2004-05. All the states except Goa
the borrowings contracted to finance fiscal deficits and Jharkhand managed to bring about reduction in
over the years, and is an important indicator of fiscal their debt-GSDP ratio. FC-XII recommended that the
correction. In consonance with the reduction in fiscal debt-GSDP ratio be brought down to 28 per cent over
deficits there was reduction in the debt-GSDP ratio of a period of time so as to be consistent with the fiscal
the general category states by over 5 percentage points deficit target.
of GSDP in 2007-08 over 2004-05 (Table 4.12). In
seven out of the 17 general category states, debt-GSDP 4.47 Though the aggregate debt-GSDP ratio of the
ratio exceeded 40 per cent in 2004-05 as compared special category states in 2007-08 was lower as
to the group average of 39.18 per cent. By 2007-08, compared to the 2004-05 level, the debt position of
the number of such states had come down to four, six of the 11 states, which had registered a revenue
57
Thirteenth Finance Commission
surplus in all three years since 2005-06, worsened Andhra Pradesh followed by Karnataka, Madhya
by 2007-08. The debt-GSDP ratio of special category Pradesh and Uttar Pradesh. The tax-GSDP ratios
states continues to remain at a much higher level in the first two states were relatively higher in
than that of the general category states. Low levels 2004-05 as compared to the average for general
and fluctuating nature of GSDP growth partly category states. Karnataka stands out with the
explains the high debt-GSDP ratios in some of highest tax-GSDP ratio of 12.07 in 2007-08 as
these states. compared to the average of 7.89 for the general
category states as a whole. The improvement in
Own Tax Revenues states with low tax-GSDP ratios has been relatively
less. While Bihar, with the lowest tax-GSDP ratio
4.48 There was an improvement in own tax
of 4.57 in 2004-05, improved its ratio marginally
revenues of all general category states with the
in 2007-08, the ratio in respect of West Bengal
exception of Haryana and West Bengal between
slipped by 0.51 percentage points to 4.24 in the
2004-05 and 2007-08 (Table 4.13). The
same period.
improvement in tax-GSDP ratio was highest in
Table. 4.14: States: Comparative Trends in Expenditure
(per cent of GSDP)
Revenue Expenditure Capital Expenditure
States 2004-05 2005-06 2006-07 2007-08 Difference 2004-05 2005-06 2006-07 2007-08 Difference
(5-2) (10-7)
1 2 3 4 5 6 7 8 9 10 11
Andhra Pradesh 14.88 14.79 15.39 17.27 2.40 2.57 3.25 3.68 4.09 1.51
Bihar 19.99 22.15 20.80 22.41 2.42 1.65 2.60 5.27 5.80 4.16
Chhattisgarh 15.85 13.54 13.70 14.15 -1.70 2.85 2.72 3.42 4.09 1.23
Goa 16.92 16.40 17.00 16.90 -0.02 3.71 4.35 4.31 4.19 0.48
Gujarat 12.85 11.59 11.48 10.93 -1.92 2.17 3.17 3.08 2.22 0.05
Haryana 12.18 11.88 12.94 11.88 -0.31 0.96 1.52 1.92 2.32 1.36
Jharkhand 13.59 15.43 14.46 15.58 1.99 2.60 3.34 2.33 3.72 1.12
Karnataka 16.64 16.69 17.76 17.36 0.72 3.12 3.47 4.54 4.02 0.90
Kerala 15.57 14.81 14.62 15.33 -0.25 0.62 0.66 0.63 0.91 0.29
Madhya Pradesh 16.80 17.68 17.44 17.97 1.16 4.61 5.69 4.03 4.79 0.18
Maharashtra 13.18 11.93 12.05 11.20 -1.98 2.03 2.30 1.98 1.99 -0.05
Orissa 17.32 17.32 17.30 17.16 -0.17 1.48 1.32 1.59 2.73 1.25
Punjab 17.65 16.59 15.03 16.77 -0.87 0.78 1.38 2.10 1.59 0.81
Rajasthan 16.97 16.60 16.81 17.48 0.51 2.97 3.32 3.24 3.93 0.96
Tamil Nadu 14.41 13.94 14.57 14.80 0.40 2.26 1.77 2.27 2.57 0.32
Uttar Pradesh 18.09 16.66 17.85 18.94 0.85 2.29 3.11 4.48 4.92 2.63
West Bengal 13.49 13.26 12.53 12.39 -1.11 0.88 0.70 0.74 0.87 -0.01
Total: GCS 15.18 14.63 14.77 14.98 -0.20 2.12 2.50 2.78 2.94 0.83
Arunachal Pradesh 52.91 57.15 55.79 56.43 3.52 13.14 15.00 17.22 18.81 5.67
Assam 19.47 18.22 17.97 18.09 -1.38 4.15 1.88 2.28 2.40 -1.75
Himachal Pradesh 25.11 25.39 26.96 25.93 0.82 2.84 3.22 3.91 4.42 1.59
Jammu and Kashmir 34.22 37.38 36.56 38.34 4.12 8.99 11.38 8.46 11.69 2.71
Manipur 36.15 39.57 45.19 40.19 4.04 11.41 12.16 16.23 19.42 8.01
Meghalaya 27.50 26.50 27.41 29.63 2.14 4.23 4.10 4.60 5.15 0.92
Mizoram 56.85 58.87 57.53 58.04 1.19 13.43 16.73 15.63 16.55 3.13
Nagaland 31.51 36.36 34.81 35.76 4.25 7.10 9.14 11.13 11.42 4.32
Sikkim 107.57 96.59 91.20 99.83 -7.74 22.07 18.89 15.77 17.66 -4.41
Tripura 26.31 25.48 24.14 24.83 -1.48 7.67 7.92 7.03 8.21 0.54
Uttarakhand 21.23 21.44 21.80 21.33 0.10 4.79 6.52 5.72 6.57 1.78
Total: SCS 26.60 26.89 26.94 27.15 0.54 5.82 5.89 5.69 6.68 0.86
Total All States 15.88 15.36 15.47 15.67 -0.21 2.34 2.70 2.94 3.16 0.81
Note: GCS: General Category States; SCS: Special Category States.
Source: Basic data from State Finance Accounts
58
Chapter 4: Review of Union and State Finances
4.49 All special category states improved their capital expenditures. The improvement was
tax-GSDP ratios in 2007-08 relative to 2004-05, significant in Arunachal Pradesh, Manipur, Mizoram
with the exception of Assam. There was and Nagaland. The capital expenditure–GSDP ratio
considerable improvement in Own Tax Revenues in special category states is much higher than that in
in the states of Jammu & Kashmir and Uttarakhand. the general category states because of higher revenue
States in the special category improved their overall surpluses in the former.
tax-GSDP ratio by 0.8 percentage point of GSDP in
2007-08 over 2004-05, which was higher than the Summary
aggregate improvement of 0.53 per cent of GSDP
4.52 The comparative performance of states
achieved by general category states.
during 2004-08 may be summarised as below:
Expenditure of States i) There was significant improvement on the
4.50 Expenditure trends for states are presented revenue account, with the number of
revenue-surplus general category states
in Table 4.14. The general category states
going up from four in 2004-05 to 14 in
witnessed a marginal reduction of 0.20 per cent
2007-08. The only three states with revenue
of GSDP in their revenue expenditure in 2007-08
deficits in 2007-08 were Kerala, Punjab and
over the 2004-05 level. Reduction in revenue
West Bengal. Thus, in most general category
expenditure as a percentage of GSDP was observed
states, elimination of the revenue deficit was
in nine of the 17 states. Andhra Pradesh, Bihar and
achieved one year ahead of the target date.
Jharkhand stand out for witnessing a significant
All special category states were in revenue
increase in their revenue expenditure, ranging
surplus in 2007-08.
from 1.99 to 2.42 per cent of GSDP between
2004-05 and 2007-08. Reduction in interest ii) Elimination of revenue deficit in all states
burden following the DCRF seems to have aided (barring three) by 2007-08, meant that fiscal
the states in their effort to reduce revenue deficits were now incurred on account of
expenditure. In contrast, there was a marginal capital expenditure. This marks the quality
increase in the revenue expenditure of special of fiscal correction achieved.
category states during 2004-08. Revenue iii) Only five of the 17 general category states had
expenditure-GSDP ratio is much higher at 27.15 fiscal deficits exceeding 3 per cent of GSDP
per cent in special category states as compared to in 2007-08, as compared to 11 in 2004-05.
14.98 per cent in general category states in Among the 11 special category states, only
2007-08. Assam, Sikkim and Tripura are the only four (Jammu & Kashmir, Mizoram,
three states in the special category to have reduced Nagaland and Uttarakhand) had fiscal
their revenue expenditure-GSDP ratios in deficits exceeding 3 per cent of GSDP in
2007-08 compared to the 2004-05 levels. 2007-08, as compared to 10 in 2004-05.
4.51 Aided by improvement on the revenue iv) In six of the 17 general category states, fiscal
account, there was overall improvement in the capital deficit was less than 2 per cent of GSDP, and
expenditure of general category states from 2.12 per in Maharashtra and Orissa, the fiscal account
cent of GSDP in 2004-05 to 2.94 per cent of GSDP turned surplus in 2007-08. The borrowing
in 2007-08. Only Maharashtra and West Bengal limits prescribed for states in accordance
witnessed a marginal reduction in their capital with the correction path stipulated by
expenditure-GSDP ratios between 2004-05 and FC-XII, were with reference to the GSDP
2007-08. The improvement was significant in the paths as projected by FC-XII. States with
poorer states of Bihar and Uttar Pradesh. With the higher GSDP growth than projected would,
exception of Assam and Sikkim, all the special thereby, exhibit lower fiscal deficits as a
category states witnessed improvement in their percentage of their actual GSDP.
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Thirteenth Finance Commission
v) Corresponding to the declining path of fiscal 4.54 Transfers through the Finance Commissions
deficits, the debt-GSDP ratios of states also are predominant, accounting for over 68 per cent
declined over the period. There were only of total transfers in recent years. There has been an
four general category states with debt-GSDP increase in the share of Finance Commission
ratios exceeding 40 per cent in 2007-08, as transfers from 60.13 per cent in the award period
compared to seven in 2004-05. However, the of FC-VIII to 68.03 per cent in the period covered
debt position of six of the 11 special category by FC-XII. Within the Finance Commission
states worsened by 2007-08. transfers, there has been an increase in the share of
vi) With a few exceptions, the tax-GSDP ratios grants, particularly in the periods covered by
of all states improved over 2004-08, both in FC-XI and FC-XII. FC-XII felt that grants could be
the general category and the special category, targeted better and that cost disabilities and
the exceptions being Haryana and West distributive considerations could be addressed
Bengal in the general category and Assam in more effectively through grants than through tax
the special category. The tax-GSDP ratio is devolutions. The Commission, accordingly,
the highest in Karnataka, followed by Tamil increased the share of grants in the transfers
Nadu and Andhra Pradesh. Bihar and West recommended by it.
Bengal are at the bottom of the list of general 4.55 The share of plan grants has been increasing
category states in terms of tax-GSDP ratios. since 2006-07 and the increase is more pronounced
vii) There was only a marginal decline of 0.20 per from 2007-08 onwards. This is on account of a shift
centage points of GSDP in the aggregate in the composition of plan grants as well as higher
revenue expenditures of general category transfers through CSS. Now, a substantial portion of
states in 2004-08, with eight states witnessing plan grants dispensed to states is scheme-specific, and
an increase and nine states registering a as a result, the share of formula-based normal central
decline. There was significant increase in assistance in total plan grants has come down
revenue expenditure in Andhra Pradesh, Bihar significantly. There has been an increase in the number
and Jharkhand. Further, significant reduction of Centrally Sponsored Schemes, some of which are
in revenue expenditure took place in funded by the proceeds of cesses levied by the Union
Chhattisgarh, Gujarat, Maharashtra and West Government.
Bengal. There was a marginal increase in 4.56 In recent years, plan grants have become
revenue expenditure of special category states more scheme-oriented, reverting in a way to the
during 2004-08, with the exception of Assam, pre-1969 position of scheme-based transfers. There
Sikkim, and Tripura, which saw a reduction in is a general consensus on reducing the number of
their revenue expenditure-GSDP ratios. CSS and moving towards predominance of
formula-based transfers, but there has been no
Trends in Inter-governmental Transfers significant movement in this direction. It is our
4.53 In India, resource transfers from the Centre to considered view that initiatives should be taken in
states, comprising statutory and non-statutory this direction.
transfers take place through a multiplicity of channels. 4.57 Multiplicity of transfer channels makes it
Statutory transfers in the form of share in central necessary for the Finance Commission to look at
taxes and non-plan grants are based on the overall transfers. For the first time FC-XI
recommendations of the Finance Commissions. recommended an indicative ceiling of 37.5 per cent
Non-statutory revenue transfers are in the form of of Centre’s gross revenue receipts as transfers to
plan grants from the Planning Commission, as well states from all channels. This was raised to 38 per
as plan and non-plan grants from the central cent by FC-XII. Trends in transfers to states as a
ministries. The relative shares of these revenue proportion of the Centre’s gross revenue receipts
transfers are presented in Annex 4.1. are presented in Annex 4.2.
60
Chapter 4: Review of Union and State Finances
Table 4.15: Share of the Centre in Combined Revenue Receipts Before and After Transfers
(per cent)
Commission Share of the Centre in Combined FC Transfers to States/ Total Transfers to States/
Revenue Receipts Combined Revenue Combined Revenue
Receipts Receipts
Before After FC After Total
Transfers Transfers Transfers
FC-VIII 65.4 49.1 38.7 16.3 26.7
FC-IX 62.8 45.6 35.3 17.2 27.5
FC-X 60.8 44.1 36.3 16.7 24.5
FC-XI 58.5 40.4 33.3 18.1 25.2
FC-XII 62.6 42.4 35.7 20.2 26.9
2005-06 61.9 41.6 35.3 20.3 26.6
2006-07 62.5 41.9 35.4 20.6 27.1
2007-08 63.5 43.6 36.5 19.9 27.0
Notes: 1. For FC-XII the average is for three years (2005-08).
2. FC transfers to states include both tax devolution and grants.
3. Total transfers to states include tax devolution and grants by the Finance Commissions and other plan and non-plan grants from the Centre.
These do not include tranfers outside the state budget.
Source: Basic data from Indian Public Finance Statistics and Union Finance Accounts (various years).
4.58 After the peak level of 40.33 per cent of gross Expenditure
revenue receipts of the Centre during the award 4.60 Table 4.16 presents the relative shares of the
period of FC-IX, central transfers dipped to around Centre and states in the combined revenue and total
35 per cent in the periods covered by FC-X and expenditures. The Centre’s share in the combined
FC-XI. During the period covered by FC-XII, central revenue expenditure varied from 40.0 per cent to
transfers are estimated to be over 38 per cent of the 46.1 per cent through the period covered by FC-I to
Centre’s gross revenue receipts. In 2008-09 and FC-XII. Since the period covered by FC-VIII, there
2009-10, there is more than two percentage point has been a remarkable stability in the relative shares
increase in central transfers to states. Both Finance of the the Centre and the states in the combined
Commission grants and plan grants account for the revenue expenditure with the share of the Centre
variations in central transfers as a percentage of fluctuating in the narrow range of 43 to 44 per cent.
gross revenue receipts. As far as combined total expenditure is concerned,
the share of the Centre varied from 43.14 per cent
Vertical Imbalance to 50.51 per cent through the award periods of all
the twelve Finance Commissions. The share of the
Revenue Receipts Centre remained stable at around 43 per cent since
4.59 The relative shares of the Centre and states the award period of FC-X.
in the combined revenue receipts as well as 4. 61 Figure 4.4 shows the year-wise variations
combined expenditure show the vertical imbalances in the shares of states in combined revenue and
in the Indian federation. The total transfers as a total expenditure.
proportion of combined revenue receipts have
remained stable since FC-VIII. There has been a Policy Implications
slight upward drift in the share of Finance
4.62 Putting fiscal correction back on track should
Commission transfers in combined revenue receipts
be the priority of both the Centre and the states. With
over the period as a whole, because of an increase
the moderation in international oil prices,
in the recommended share of the states in net
commitments on account of arrears of pay following
central taxes by successive Finance Commissions
the recommendations of the Sixth CPC and farm loan
(Table 4.15).
61
Thirteenth Finance Commission
waiver having been met and the economy showing 4.16: Relative Shares of Centre and States in
Revenue and Total Expenditures
signs of recovery, it should be possible to return to
the path of fiscal correction at the earliest. There is Average for Relative Shares
improvement in the global economic outlook with a Finance Total Revenue
number of major economies coming out of recession. Commission Expenditure Expenditure
Periods Centre States Centre States
There are also indications of the global economic
situation improving in the last quarter of 2009 and FC-I 43.83 56.17 40.77 59.23
FC-II 49.47 50.53 41.83 58.17
the improvement continuing through 2010. A
FC-III 50.51 49.49 46.10 53.90
calibrated exit strategy from the fiscal expansionary FC-IV 47.69 52.31 41.77 58.23
stance of 2008-09 and 2009-10 should be the main FC-V 43.14 56.86 40.00 60.00
agenda for the government in 2010-11. The proposed FC-VI 47.35 52.65 44.19 55.81
introduction of GST is expected to reverse the FC-VII 44.79 55.21 41.98 58.02
temporary reduction in revenue following rate cuts FC-VIII 47.86 52.14 44.22 55.78
FC-IX 45.58 54.42 43.45 56.55
effected as part of the fiscal stimulus. We are
FC-X 43.35 56.65 43.18 56.82
recommending a revised roadmap of fiscal correction
FC-XI 43.77 56.23 44.03 55.97
for both the Centre and the states. The revised FC-XII* 43.74 56.26 44.45 55.55
roadmap prescribes a combined debt-GDP ratio of Overall
68 per cent for 2014-15. With the target of debt-GDP Average 45.92 54.08 43.00 57.00
ratio for the Central Government set at 45 per cent in Note: * Average of three years (2005-08).
Source: Basic Data from Indian Public Finance Statistics (various years).
2014-15, the target envisaged for all the states by
implication is 25 per cent (the state and central ratios also targets elimination of revenue deficit by the Centre
do not add up to the combined ratio because of the and all the states individually by 2014-15 as detailed
netting out of central loans to states). The roadmap in Chapter 9.
Figure 4.4: Relative Shares of States in Combined Revenue and Total Expenditure
62
CHAPTER 5
Goods and Services Tax
63
Thirteenth Finance Commission
1
The final report of the third study was awaited at the time of writing. It will also be put on the FC website after receipt.
64
Chapter 5: Goods and Services Tax
consumption increasing, while providing needless 5.19. The CST Act should be abrogated such that
relief to the higher taxed luxury goods. the provision for notifying declared goods is not
available to the Centre.
5.10 Compensation mechanism: Some states
currently having a high tax effort noted the 5.20. The rules of supply for inter-state sales
possibility of suffering losses upon implementation should be finalised expeditiously, in an objective
of GST. They requested that an objective manner. Further, the modalities for levying GST on
compensation mechanism to support such losses be imports, textiles and sugar should be agreed upon.
put in place. Compensation on loss of CST should
also be part of this package. Views of the Central Government
5.11 Small enterprises: Small enterprises 5.21. During our consultations with the Central
manufacturing specified goods with an annual Government, they expressed concerns about the
turnover of less than Rs. 1.5 crore are presently following issues:
exempt from excise. The GST will bring them into i) The recommendation in the Discussion
the tax net, rendering them uncompetitive and Paper that GoI maintain the CGST threshold
enhancing their compliance cost. at Rs. 1.5 crore, while the State Goods and
5.12 Cesses and surcharges: All cesses and Services Tax (SGST) composition threshold
surcharges levied by both the Centre and the states would be Rs. 40 lakh.
should be subsumed into the GST. ii) The importance of agreeing upon a uniform
5.13 Taxes to be excluded from GST: Electricity and limited list of exempted items for the
duties; purchase tax; and taxes on crude oil, motor Centre and for all the states.
spirit (MS), high speed diesel (HSD), alcohol and iii) The criticality of promoting the power sector
tobacco should be excluded from the purview and the importance of subsuming electricity
of GST. duty into GST.
5.14 Compliance mechanism: The GST law iv) The need to subsume purchase tax into GST
should be subject to rigorous compliance and to ensure that it remains a consumption-
deviations should not be permitted. Changes should based tax and is not exported across tax
be made only with the consent of all the states. jurisdictions.
5.15 Selective rollout: States should be given the
option to adopt GST at their convenience and the Impact of GST on Foreign Trade
possibility of implementation of GST in only some 5.22. A NCAER study, commissioned by us,
states should be incorporated in the design. evaluates the possible impact of GST on India’s
5.16 Dispute Resolution: An independent dispute international trade in a Computable General
resolution mechanism should be put in place. Equilibrium (CGE) framework. It notes that the
differential multiple tax regimes across sectors of
5.17 Implementation modalities: All tax returns, production are leading to distortions in the
assessment and audit procedures should be allocation of resources as well as production
harmonised across the country. A comprehensive inefficiencies. Complete offsets of taxes are not
information technology (IT) based infrastructure being provided to exports, thus affecting their
should be put in place to track inter-state competitiveness. It estimates that implementation
transactions. of a comprehensive GST across goods and services
5.18 Adequate preparation for the changeover, will enhance the nation’s Gross Domestic Product
rather than an arbitrary fixed schedule, should be (GDP) by between 0.9 and 1.7 per cent. This works
the sole criterion for deciding the timing for out to between Rs. 52,600 crore and Rs. 99,450
introduction of GST. crore on the basis of GDP figures for 2009-10. Such
65
Thirteenth Finance Commission
benefits would accrue every year. It would also lead Specifically, stamp duty, taxes on vehicles,
to efficient allocation of the factors of production, taxes on goods and passengers and taxes and
with a fall in the overall price level. The report duties on electricity should be subsumed into
identifies a number of sectors which would directly the GST.
benefit from the implementation of GST. The study
iii) Transmission fuels, High Speed Diesel
estimates the gain in exports to vary between 3.2
(HSD), Motor Spirit (MS) and Aviation
and 6.3 per cent. Imports are expected to gain
Turbine Fuel (ATF) should be brought under
between 2.4 per cent and 4.7 per cent, thus
a dual levy, of GST and an additional levy,
improving the trade balance.
with no input tax credit available on the
5.23. The study estimates the revenue-neutral additional levy. This would protect the
GST rate across goods and services to be between existing revenues from these sources.
6.2 and 9.2 per cent, depending upon the However, all other petroleum products
assumptions made. This value was conservatively should be brought within the ambit of the
arrived at, ignoring the existence of tax thresholds GST, as should natural gas.
and composition limits. The study assumes that iv) The sumptuary goods of tobacco and alcohol
the GST adopted will be a truly consumption based should be taxed through GST as well as an
tax which will: (i) eliminate all origin based taxes; additional levy, with no input tax credit being
(ii) subsume all the other presently levied indirect provided on the additional levy.
taxes on goods and services (excluding customs)
and (iii) will not be exported across tax v) The entire transportation sector should be
jurisdictions. To exploit the benefits of GST fully, included in the GST base, and taxes on
we also need to ensure that tax compliance costs vehicles, goods and passengers should be
are low and tax credits are available seamlessly subsumed into the GST. Similarly, the power
across tax jurisdictions. Apart from uniform tax sector should be included in the tax base and
rates, this will also require harmonisation of electricity duty subsumed.
procedures for levy, assessment, appropriation vi) The real estate sector (both residential and
and even audit, between the states and the Centre, commercial) should be included in the tax
as well as amongst the states themselves. This is base and stamp duty levied by State
best done through a model GST, the characteristics Governments should be subsumed into GST.
of which are outlined in Para 5.25. A threshold of Rs. 10 lakh in this regard will
permit exemption of small residential and
Report of the FC -XIII Task Force business properties.
5.24. The task force, appointed by this vii) The entire financial services sector should be
Commission, comprehensively analyzed all GST brought under the GST tax base.
related issues and made a number of
viii)Capital goods should be treated like all other
recommendations. The Task Force Report is
goods and services, with no restrictions on
available on the Commission’s website. The key
availment of input tax credit at purchase, and
points are summarised below:
a corresponding liability for GST on
i) Following the present VAT, the GST should subsequent sale.
be levied on consumption and computed on
ix) No exemptions should be allowed, except for
the basis of the invoice credit method.
a common list applicable to all states as well
ii) All major indirect taxes (excluding customs) as the Centre, which should only comprise :
and all cesses and surcharges should be (a) unprocessed food items; (b) public
subsumed into the central and state GST. services provided by all governments
66
Chapter 5: Goods and Services Tax
excluding railways, communications, public Table 5.1: Estimates of the Tax Base of GST by
sector enterprises; (c) service transactions Different Approaches
between an employer and employee and (d) (Rs. crore)
health and education services. 1. Subtraction Method 30,73,037
x) ‘Place of supply’ rules for goods and services 2. Consumption Method
a. Task Force Method 37,43,077
should be based on international best
b. NCAER Method 30,77,952
practice, and be carefully framed to ensure
3. Shome Index Method 27,82,809
consistency, credibility and relevance.
4. Revenue Method 29,49,748
xi) An exemption threshold of Rs. 10 lakh should Average 31,25,325
be adopted, with a composition limit of Rs.
40 lakh, above which GST would be and 6 per cent for SGST). This excludes the
mandatorily applicable. The present excise additional levies which would be imposed on
exemption upto Rs. 1.5 crore should be petroleum and sumptuary goods. The task
withdrawn. However, in the case of certain force has recommended that all goods and
high value goods comprising: (i) gold, silver services should be subject to tax at the single
and platinum ornaments; (ii) precious stones positive GST rate of 12 per cent (that is, 5
and (iii) bullion, the dealers may, subject to per cent for CGST and 7 per cent for SGST)
the threshold limit of Rs. 10 lakh but without other than exports.
the ceiling of Rs. 40 lakh, also be allowed to
opt for the composition scheme. The Model GST
67
Thirteenth Finance Commission
5.27. The SGST portion would subsume the desirable that these limits be applied to CGST as
following taxes: well. Sales of goods of local importance will fall
i) Value Added Tax within these threshold limits, thus keeping them out
of the ambit of GST.
ii) Central Sales Tax
5.31 Dealers with turnover below Rs 1.5 crore
iii) Entry Tax, whether in lieu of octroi or
were previously exempt from CENVAT. As
otherwise
thresholds need to be consistent across SGST and
iv) Luxury Tax CGST, such exemptions should not continue. Under
v) Taxes on lottery, betting and gambling the GST regime, dealers with turnovers between Rs.
10 lakh and Rs. 40 lakh will have to pay both CGST
vi) Entertainment Tax
and SGST. Their compliance burden will increase.
vii) Purchase Tax This issue can be addressed if both CGST and SGST
viii)State Excise Duties are levied and collected from such dealers by a single
ix) Stamp Duty agency, viz. the State Government, which would
then remit the CGST portion to the Central
x) Taxes on vehicles
Government. State Government will be responsible
xi) Tax on goods and passengers for assessment, levy, collection and audit, with
xii) Taxes and duties on electricity Central Government retaining it right to exercise
these functions in respect of CGST in specific cases.
xiii)All state cesses and surcharges
State Governments could be reimbursed the
collection charges for this effort. Wherever the
Special Provisions for Certain Goods
additional levy is likely to cause hardship, a scheme
5.28 The taxation of petroleum products and for reimbursement to economically vulnerable
natural gas would be rationalised by including them dealers could be considered by the government.
in the tax base. HSD, MS, and ATF could be charged
5.32 The present area-based exemption schemes
GST and an additional levy by both the Central and
are not consistent across the states where they are
State Governments. No input credit would be
applicable. They differ in the admissibility of
available against either CGST or SGST on the
CENVAT credit as well as the sunset clause. Since
additional levy. A similar treatment would be
it would be difficult to subsume these schemes into
provided to alcohol and tobacco. Such an
the GST structure, it is recommended that they be
arrangement would ensure protection of existing
terminated. The existing schemes should not be
revenues while taking care of environmental
grandfathered. Alternative options like refunding
concerns.
taxes paid by industries in these locations could be
considered.
Exemptions
5.29 No exemptions should be allowed other than Treatment of Inter-state Sales
a common list applicable to all states as well as the
5.33 All transactions across tax jurisdictions
Centre, which should only comprise: (i)
should be free from tax. While exports will be zero
unprocessed food items; (ii) public services
rated, inter-state transactions should be effectively
provided by all governments excluding railways,
zero-rated so as to ensure that the tax is collected by
communications and public sector enterprises and
the consuming state consistent with the destination
(iii) service transactions between an employer and
principle. Therefore, any model adopted must allow
employee (iv) health and education services.
accurate determination and efficient transfer of input
5.30 A threshold of Rs. 10 lakh and a composition tax credit across tax jurisdictions. Further, the model
limit of Rs. 40 lakh have been agreed upon by the should not impose any undue restrictions on tax
EC for SGST in the first discussion draft. It is credit set-off or increase in compliance costs.
68
Chapter 5: Goods and Services Tax
69
Thirteenth Finance Commission
It empowers states by including services as well as i) The NCAER study computed the present
the manufacturing stage in their tax base. It thus value of GST-reform induced gains in GDP
creates an uneven balance between states which as the present value of additional income
implement GST and those which do not. Goods and stream based on the discount rate of 3 per
services sold between complying and non- cent representing the long-term real rate of
complying states would thus require to be treated interest. The present value of total gain in
differently in the wake of selective implementation GDP is estimated as between Rs. 14.69 lakh
of GST. If CST were to continue to apply in non- crore and Rs. 28.81 lakh crore. The
complying states, inter-state sales would become corresponding dollar values are US $325
further complex. Goods passing through a non- billion and $637 billion. This represents
complying state, to be finally sold in a complying between 25 and 50 per cent of the 2009-10
state, would be burdened by a cascading tax which GDP gained through this major tax reform.
would adversely affect the price to the final The all-government tax revenue will also
consumer. The seamless flow of Input Tax Credit increase by about 0.20 per cent of GDP, a
(ITC) on inter-state transactions would be significant increment to revenues through
interrupted. Further, rate mismatches may implementation of the model GST.
encourage trade diversion and cost of compliance ii) The Task Force report estimated that such
would become extremely high for inter-state a GST would have a tax base of around
dealers. This would discourage economies of scale. Rs. 31,00,000 crore. It further estimated that
We, therefore, feel that the model GST should be this would require a revenue-neutral rate of
implemented by all states and the Centre at one only 12 per cent (5 per cent for the Central
time, and not be partially implemented in some GST and 7 per cent for the State GST). This
states. It is for this reason that we recommend that is a substantial decrease from the present
proper preparation for the GST and generating of a 20.5 per cent (8 per cent for CENVAT and
consensus amongst all states is a greater priority 12.5 per cent for VAT). This should be the
than complying with the 2010 deadline. However, target.
as has been suggested in some quarters, it is possible
for the Centre alone to transform the CENVAT into iii) Adoption of such a model GST would make
a GST at the manufacturing stage at any time. It India a dynamic common market and also
could unify the CENVAT rates and impose a general result in generation of positive externalities.
tax on all services, while adopting a common Despite lower levels of taxes, the revenue of
threshold. As mentioned earlier, a dual tax on the Union and the states will be buoyant.
petroleum products, tobacco and alcohol could be Subsumation of all major indirect taxes will
levied–a GST component and an additional levy result in removal of inefficient taxes. Our
manufactures will become more competitive
component with no input credit being provided on
and consequently exports will grow.
the latter.
Provision of seamless input tax credit across
Transition Provisions all transactions will avoid tax cascading,
eliminate double taxation and improve
5.41 A number of transitional issues will arise. resource allocation. It will foster a common
Provisions to address such issues must be consistent market across the country, reorient supply
with the model GST. chains and remove the present bias towards
backward integration. Further, it will also
Benefits from Supporting the Model GST inhibit tax induced migration of investment.
5.42 This Commission supports the It will, thus, support the growth of lagging
implementation of a model GST for the following but resource-rich regions. A single rate
reasons: across all goods and services will eliminate
70
Chapter 5: Goods and Services Tax
classification disputes and make tax fiscal headroom available. They can impose
assessment more predictable. The an additional levy on transmission fuels as
harmonisation of tax assessment, levy and well as sumptuary goods and the authority
collection procedures across states proposed to levy temporary cesses and surcharges in
under the GST will reduce compliance costs, case of emergencies, remains. They can also
limit evasion, enhance transparency and continue to levy user charges for services
improve collection efficiency. provided to citizens. Expenditure policy will
continue to remain as a powerful fiscal
iv) Successful implementation of GST also offers
instrument. Further, the strengthening of
the possibility of strengthening the revenue
their fiscal base will improve their access
base of local bodies that form the third tier
of government. to capital markets, enhancing their
borrowing capacity.
v) The inclusion of real estate in the GST tax
base will constrain the parallel economy with ii) The tax base of State Governments will
consequent positive spillovers into significantly increase with the inclusion of
governance and the development of land the tax on services as well as the tax on
markets. manufacture. The tax base of the Centre, on
the other hand, will increase only to the
vi) The NCAER model suggests that GST could extent of tax on sales. Thus, it cannot be said
lead to better environmental outcomes. that the vertical imbalance will increase in
favour of the Centre.
Concerns of State Governments
iii) States will benefit from the abolition of the
5.43 We address below the principal concerns of cesses and surcharges presently being levied
states relating to revenue from certain products, by the Centre, as the size of the divisible pool
loss of autonomy in a GST framework, possibilities will rise. Presently this amounts to about 15
of states entering GST in a phased manner and per cent of the divisible pool.
treatment of small enterprises.
iv) Tax policy is tax administration, and
Revenue from Certain Products significant scope exists for improving
tax collection efficiency through
5.44 The model GST will accommodate the
implementation of GST.
concerns of governments with regard to
maintenance of their revenues from transmission v) The GST grant recommended by this
fuels and sumptuary goods by allowing Commission compensates for the seeming
the imposition of an additional levy over and limitation in fiscal autonomy by enhancing
above the GST. expenditure autonomy through
compensation payments and additional
Dilution of Fiscal Autonomy of States formulaic transfers.
5.45 Concerns have been expressed by some state vi) The GST will be a landmark effort by the
governments that the GST regime will constrict states and the Union to further co-opertive
their fiscal autonomy and further tilt the vertical federalism with all stakeholders contributing
imbalance. However, this argument should be to national welfare by accepting its
viewed in the following perspective: framework.
i) While the states will normally not be able to
Compensation Mechanism
deviate from the nationally agreed model for
the GST, such constraints will apply to the 5.46 An objective compensation mechanism
Centre as well. Further, the states still have incorporated in the ‘Grand Bargain’ will provide
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Thirteenth Finance Commission
reassurance to both the Central and State model GST. Keeping the experience of the
Governments. This has been proposed in Para 5.60. implementation of VAT in mind, we suggest that the
six elements of the Grand Bargain comprise: (i) the
Checkposts design of the GST; (ii) its operational modalities;(iii)
5.47 Most states have put in place a system of binding agreement between Centre and states with
checkposts on their border roads. There are a number contingencies for change in rates and procedures;
of reasons for putting in place such physical barriers (iv) disincentives for non compliance; (v) the
to trade. These include (i) enforcement of state excise, implementation schedule and (vi) the procedure for
market cess, forest and vehicle fitness regulations (ii) states to claim compensation. The design of the
applicability of lower taxes on inter-state trade than model GST is suggested in paras 5.25 to 5.35. The
on intra-state trade (iii) there being no tax on stock operational modalities are outlined in paras 5.36 to
transfers (iv) levy of entry tax on specified goods (v) 5.41. The proposed agreement between the Centre
levy of octroi by some municipalities and (vi) internal and states, with contingencies for changes in the
security. The onset of GST will not obviate all these agreement, is described in paras 5.49 to 5.51. The
reasons, and therefore, check posts on state borders disincentives for non-compliance are described in
may remain. However, it must be recognised that paras 5.52. The implementation schedule is
such checkposts, by the very nature of their described in paras 5.57 to 5.59. The procedure for
operations, generate enormous delays in road traffic. claiming compensation is at Para 5.60.
The arrangement also encourages rent-seeking
Binding Agreement between Centre and
behaviour. It may be difficult to eliminate checkposts,
States
given the valid concerns of State Governments. But
what appears to be egregious is that the same vehicle 5.49 Compliance of states with the previously
has to pass through two checkposts–the exporting agreed upon guidelines for VAT has not been very
state’s checkpost and the importing state’s uniform. A number of states have deviated from the
checkpost—while crossing one border. Both these three-tier VAT rates, thus indicating the need to put
checkposts are often located within a couple of in place an enforcement mechanism. States are
kilometres of each other and a transport vehicle has equally apprehensive that the Centre may
to spend considerable time at both. Perhaps, it may unilaterally raise tax rates without consulting them.
be possible for both states to put up a combined The Constitution does not envisage sharing of tax
checkpost. Officials of both states could sit together bases. Taxation powers are listed either in the State
and conduct their verifications in a single check post. List or in the Central List, but not in the Concurrent
Alternately, one state could handle traffic in one List. For the first time since the Constitution was
direction and the other state in the other direction, enacted, a tax base is proposed to be shared between
essentially ensuring that there would be only one the Centre and the states. It is, thus, necessary that
check per border for a goods vehicle. Such an a firm arrangement be put in place for
arrangement would significantly reduce travel time implementing the GST to prevent deviations from
and we recommend it for consideration. There is an the agreed upon model by either the Centre or the
overwhelming retionale for minimising delays and states.
thus reducing transaction costs. States could be
5.50 One option is the possibility of a
encouraged to consider user-friendly options like
Constitutional provision to facilitate a tax
electronically issued passes for transit traffic in order
agreement between the Centre and the states on the
to reduce truck transit time through their states.
lines of the erstwhile Article 278. One suggestion is
that the new Article 278 could read:
The Grand Bargain
‘Notwithstanding anything in this Constitution, the
5.48 We propose that both the Centre and the Government of a state may enter into an agreement
states conclude a ‘Grand Bargain’ to implement the with the government of any other state or the union
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Chapter 5: Goods and Services Tax
government with respect to the levy and collection implementation modalities does not include some
of any tax or duty leviable by them, and during the of the major elements of the model GST outlined
period such agreement is in force, the power of such above. In our view, any major deviation from the
states and union as the case may be, to make laws concept of the model GST would dilute its positive
to impose any tax shall be subject to the terms of externalities, significantly reduce its benefits and
such agreement.’ It has been argued that such a reduce the incentive to switch over. For the reasons
provision will eliminate the need to amend the outlined in Para 5.42, this Commission strongly
taxing powers entrusted to the Union and the states urges that any GST model adopted be consistent
through Schedule VII of the Constitution. with the Grand Bargain described in Para 5.48. To
incentivise implementation of such a Grand Bargain
5.51 Such an agreement (between the 28 states
between the states and the Centre, this Commission
and the Centre as parties) could specify the tax rates
adopted as well as the conditions under which the recommends the sanction of a grant of Rs. 50,000
agreed tax rates can be changed. The agreement can crore to be provided to all states in the aggregate,
be made part of Goods and Service Tax laws which subject to the GST framework adopted being
the Center and all the states will separately enact. consistent with the Grand Bargain. We recognise
The agreement will, amongst other things, specify that while GST on the whole will be revenue neutral,
the rates to be adopted in these enactments and the there may be some winners and losers during the
implementation schedule. For amending the rates initial years of implementation. This grant will
subsequently, it is proposed that all states would accommodate claims for compensation from the
need to agree to a proposal to decrease rates. Only adversely affected states and balance will be
three quarters of the number of states would need distributed amongst states as per the devolution
to agree if the rates have to be increased. The Centre formula.
would have a veto power. All amendments to the 5.54 The grant of Rs. 50,000 crore would be used
agreement should be consistent with (i) maintaining for meeting the compensation claims of State
the integrity of the GST base; (ii) providing for Governments between 2010-11 and 2014-15.
administrative simplicity and (c) minimising Unspent balances in this pool would be distributed
compliance costs for taxpayers. The agreement will amongst all the states as per the devolution
need to be monitored by the Empowered Committee formula, on 1 January 2015. To allow for the
which could be transformed after the possibility of implementation of GST during 2010-
implementation of GST into a Council of Finance 11, we propose that the grant be initially allocated
Ministers with statutory backing. as given in Table 5.2:
5.52 Keeping in mind the experience under VAT 2010-11 Rs. 5000 crore
it may become necessary to deter violations of 2011-12 Rs. 11250 crore
agreement by visiting a penalty on non-complying 2012-13 Rs. 11250 crore
states. We recommend that Finance Commission’s 2013-14 Rs. 11250 crore
state specific grants and the state’s share of the GST
2014-15 Rs. 11250 crore
incentive grant be withheld for the period during
which a state is in violation of the agreement. If a 5.55 We see this allocation as substantial for two
state is in violation for only part of a year, its grant reasons. First, the Task Force estimation of RNR
should be reduced to a proportionate extent. provides assurance that such a level of
compensation may not be required. Second, the
Compensation/Incentive Grants amount of compensation required will depend upon
5.53 This Commission is aware that the tenor of the year in which GST is implemented. The total
the ongoing discussions on the GST model and amount of Rs. 50,000 crore may be earmarked for
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Thirteenth Finance Commission
GST compensation and incentive provided the system of this country initiated in 1986 with the
model GST is implemented before 31.3.2013. introduction of the MODVAT. All stakeholders
Unspent grants at the end of a year will be carried stand to gain from a swift comprehensive
forward to the next year if GST is implemented changeover to the GST. To the extent the switchover
before 31.3.2013. If GST is implemented during is staggered, the potential gains from the
2013-14, the grant will be restricted to Rs 40, 000 comprehensive GST outlined in Para 5.42 would
crore. If GST is implemented during 2014-15, the remain unrealised. Therefore, we recommend that
grant will be restricted to Rs 30,000 crore. all the elements of the model GST should be
implemented comprehensively at one instance.
5.56 To be eligible to draw down this grant, all
the elements of the Grand Bargain outlined in Para 5.59 However, we are aware that two essential
5.48 will need to be adopted. If the GST framework elements of the model have not yet been formally
adopted is not consistent with this, then this discussed by the states and consensus needs to be
Commission recommends that this grant of built before they are adopted. These are the
Rs. 50,000 crore not be disbursed. Thus, if the inclusion of stamp duty in the GST tax base to
Grand Bargain is not concluded, this grant will not enable the taxation of real estate and the use of a
mean any net fiscal outgo. If a model GST is single rate in the GST framework. More time may
implemented and the grant is disbursed, then the be required for these elements to be included in the
resultant increase in GDP and tax revenue will fully GST framework. Given that the terminal year of the
finance it. If the Grand Bargain is not put in place, period covered by our recommendations is 2014-
then the grant lapses. There are, thus, no fiscal risks 15, we propose as follows. If found necessary, the
with this grant– only advantages. GST may be initially implemented without these two
elements provided that
Implementation schedule of the Model i) At the time of its implementation, the road
GST map for their inclusion in the framework
5.57 We recognise that building consensus on before 31 December 2014 is announced.
implementing the model GST may be an involved ii) The GST is introduced with not more than
process but equally appreciate that the requirement two rates.
of a good design is paramount and should not be
iii) Properties other than individually owned
subordinated to a deadline. International experience
residential properties are brought into the
tells us that flaws in design are extremely difficult to
ambit of GST within two years of its
correct subsequently. We therefore recommend that
implementation.
marginal rescheduling of the timetable for
implementation should be acceptable if the design This contingency does not preclude the possibility
adopted is consistent with the model GST. of the Centre implementing GST at an accelerated
pace.
5.58 The objective of the model GST is to optimise
tax collection with minimal economic distortions.
Modalities for Disbursing Compensation
The Model GST should, inter alia, comprise of (i) a
uniform rate for goods and services (ii) a uniform 5.60 As mentioned in Para 5.10, states had
rate across states (iii) a zero rate for exports and requested that an objective compensation
(iv) for all other goods and services a single rate, mechanism to support possible revenue losses after
excluding the rate for precious metals. There could implementing GST be put in place. We recommend
be two possible approaches to the implementation the following:
of the Model GST: the ‘big-bang’ approach and the i. The present Empowered Committee be
‘incremental’ approach. The introduction of the GST transformed into a statutory Council of
is the last mile in the reform of the indirect tax Finance Ministers with representation from
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Chapter 5: Goods and Services Tax
the Centre and states. A GST Compensation 5.62 We recognise that the process of generating
Fund should be created under the a consensus to implement the Grand Bargain as
administrative control of this Council. outlined by us may be difficult and involved.
However, we believe that such a consensus can, and
ii. The Central Government shall transfer to the
should be, generated to fully exploit the potential
GST Compensation Fund amounts as
of GST and reap the benefits of its positive
indicated in Table 5.2 and subject to the
externalities. While we would like to support this
conditionalities indicated in paras 5.55
model GST, which is fully consumption based, has
and 5.56.
provision for seamless credit and imposes low
iii. The amounts in the Fund should be used for compliance cost, we must allow for the possibility
compensating states for any revenue loss on that political economy considerations may will
account of adoption of the model GST and otherwise. In the unlikely event that such a
the Grand Bargain as indicated above. The consensus cannot be achieved and the GST
balance, if any, remaining on 1 January 2015, framework finally adopted is different from the
will be distributed amongst the states on the Grand Bargain suggested by us,
basis of the devolution formula indicated in this Commission recommends that the grant
Chapter 8 of our report, used for distributing amount of Rs. 50,000 crore shall not be disbursed.
resources in the divisible pool amongst
states. Impact of GST on Projections made by
the Finance Commission
iv. The amount will be disbursed in quarterly
instalments on the basis of the 5.63 Though GST requires that all cesses and
recommendations made by a three-member surcharges be abolished, and this Commission
Compensation Committee comprising of the recommends that GST be implemented as early as
Secretary, Department of Revenue, possible, we have, in our projections, assumed
Government of India; Secretary to the EC continuing revenue for the Central Government
and chaired by an eminent person with from cesses for the period 2010-15. This has been
done for the following reasons.
experience in public finance. This person
would be appointed by the Union i. Ignoring the positive externalities of GST, the
Government. Commission has conservatively assumed that
GST will be revenue-neutral. Thus, income
The Way Forward from cesses and surcharges will be included
5.61 A number of legal and administrative steps in the computation of RNR. In the scenario
need to be taken prior to the implementation of when GST is implemented, the aggregate
GST. These include stakeholder consultations, revenue figures in our projections will remain
unchanged, though the accounting heads
amendments to the Constitution and state laws,
under which they are reported may change.
administrative reorganisation, preparation of GST
Since the catalysing effect of GST on the
registration, assessment and audit manuals, staff
economy has not been factored in our
training and conduct of awareness campaigns
projections, they can be seen as conservative.
amongst stakeholders. We have not touched upon
these milestones in our discussion, but are aware ii. A number of critical sectors, including roads,
that these processes may take substantial time. This education, and calamity relief, are being
is also a reason why we have earlier recommended funded from the proceeds of cesses levied by
that the putting in place an excellent design and the Government of India. The transition plan
operational framework for the GST should be given to the GST must ensure that budget
priority, even if this implies rescheduling the provisions are made to support such
previously announced implementation timetable. initiatives.
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Thirteenth Finance Commission
5.64 The model, the modalities as well as the Rs. 50,000 crore which will taper down to Rs. 40,000
timing of implementation of the GST have not yet crore and Rs. 30,000 crore if GST is implemented
been finalised. Making projections over a five-year after 1.4.2013 and 1.4.2014 respectively. The grant
period, assuming the implementation of the GST would be used for meeting the compensation claims
during this period, would, be a hazardous exercise. of State Governments for revenue losses on account
This Commission has, thus, for the purpose of our of GST implemented, consistent with the Grand
financial projections, assumed that the impact of Bargain, between 2010-11 and 2014-15. Unspent
GST will be revenue-neutral and that the gross balances in this pool would be distributed on 1
revenues of the Centre and states will not be lower January 2015 amongst all the states as per the
than those projected even after GST is devolution formula (paras 5.54 and 5.55).
implemented.
5.67 The EC should be given formal authority. The
Summary of compensation should be disbursed in quarterly
Recommendations instalments on the basis of the recommendations
by a three-member Compensation Committee
5.65 Both the Centre and the states should
comprising of the Secretary, Department of
conclude a Grand Bargain to implement the model
Revenue, Government of India; Secretary to the EC
GST. The Grand Bargain comprises five elements:
and chaired by an eminent person with experience
(i) the design of the model GST is suggested in paras
in public finance to be appointed by the Central
5.25 to 5.35; (ii) the operational modalities are
Government (Para 5.60).
outlined in paras 5.36 to 5.41; (iii) the proposed
agreement between the Centre and states, with 5.68 In the unlikely event that a consensus to
contingencies for changes is at paras 5.49 to 5.51; implement all the elements of the Grand Bargain
(iv) the disincentives for non-compliance are cannot be achieved and the GST mechanism finally
described in paras 5.52 (v) the implementation adopted is different from the model GST suggested
schedule is described in paras 5.57 to 5.59. (vi) the by us, this grant of Rs. 50, 000 crore shall not be
procedure for claiming compensation is at Para 5.60 disbursed. (Para 5.62).
(Para 5.48).
5.69 States should take steps to reduce the transit
5.66 Any GST model adopted must be consistent time of cargo vehicles crossing its borders by
with all the elements of the Grand Bargain. To combining checkposts with adjoining states and
incentivise implementation of the Grand Bargain this adopting user friendly options like electronically
Commission recommends the sanction of a grant of issued passes for transit traffic (Para 5.47).
76
CHAPTER 6
Union Finances: Assessment of
Revenue and Expenditure
77
Thirteenth Finance Commission
78
Chapter 6: Union Finances: Assessment of Revenue and Expenditure
6.8 The Planning Commission in its submission expenditure of the Central Government in the ToR,
on 16 November 2009 has projected an aggregate which is without precedent in the history of Finance
GBS requirement of Rs. 26,23,701 crore for the Commissions. They have pointed to a possible
period 2010-15. In respect of the Centrally pitfall in such an approach, in that the Finance
Sponsored Schemes (CSS), it states that according Commission’s constitutionally recommended
to the expressed views of the Central Government transfers in terms of devolution of the states’ share
it is not desirable to transfer these funds in the form of central taxes and the grants-in-aid, could then
of ‘Normal Central Assistance’ as demanded by the become residual. The comments of all the
states because of the fact that the transfer ministries, the Planning Commission, the RBI and
mechanism via the CSS ensures that central funds the collective views of the states have been dealt
actually flow to the critical sectors and that there is with in the relevant chapters of the Report.
also a matching flow of state funds into these
6.10 The MoF, on 8 September 2009, submitted
sectors. In this context, this Commission has been statements containing item-wise projections of
asked to ensure adequate availability of funds to the revenues and expenditures, along with the
states to enable them to make the matching assumptions made therein. After a meeting with the
contributions. The Planning Commission has also Commission, some of the figures were revised in the
opined that a larger provision of earmarked grants light of their submission on 16 October 2009.
offset by a lower tax share would have the effect of Several major revenue earning/spending ministries
delineating the states’ resources more effectively. also gave their assessment of the resources likely to
Like the MoF, the Planning Commission has also be generated/required during the award period. The
underlined the need to earmark funds for the Commission considered all these estimates while
maintenance of assets created through plan making its projections of the revenue and
expenditure. It has further expressed the view that expenditures of the Central Government.
given the slowdown of the economy due to global
recessionary trends, the fiscal correction strategy Policy Considerations Informing
may not only have to be state-specific, but may also the Assessment
need to be recalibrated. Comments have also been
6.11 A major challenge faced by this
made on the issue of improving the quality of public
Commission, as noted in chapters 3 and 4, was the
expenditure to obtain better outcomes in areas such
macroeconomic situation extant since late
as the management of ecology, environment and
2007-08. The Indian economy has faced several
climate change; the commercial viability of state
exogenous shocks in the past years. First, sharp
level public sector enterprises and departmental
increases in commodity prices have impacted
undertakings, including irrigation and power
public finances by raising the cost of financing fuel
projects; the roadmap for fiscal adjustment; the
and fertiliser subsidies. Second, the global
revenue-capital classification of budgetary
financial crisis has led to a slowdown in Gross
expenditure; the relevance of revenue and fiscal
Domestic Product (GDP) growth, impacting the
deficit targets; cyclically adjusted budget balancing;
revenue base and necessitating significant
and disaster management.
incremental counter-recessionary public
6.9 Other central ministries have also expenditure. While the situation has improved
commented on the specific issues of the ToR considerably in the last few months, it may still be
pertaining to them. The RBI has expressed its some time before the world economy reverts to its
opinion on the additional ToR about including the pre-recession growth trajectory. The advanced
off-budget liabilities while setting deficit targets. economies are likely to recover rather slowly and
The joint memorandum of the states has expressed investors worldwide are likely to evince greater
serious concern about the inclusion of the GBS discretion and caution while making fresh
(comprising primarily of CSSs) as committed commitments. Added to this would be the threat
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Thirteenth Finance Commission
of inflationary pressures due to the increased with regard to some items of revenue and
pressure on crude oil prices in the wake of expenditure, suitable adjustments have been made
economic recovery. This could further aggravate after careful consideration.
the existing domestic inflationary pressure due to
increasing food prices. Several experts in this field Reassessment of Base Year 2009-10
are of the view that there is also a risk that arises
6.14 In the case of tax revenues we have used the
from the possibility of another setback in the world
2009-10 (BE) projections made by the Central
of finance, where even a small adverse event has
Government. These reflect a decreasing buoyancy
an amplified capacity for destabilisation. These
relative to the previous years, which is appropriate,
risks call for a prudent assessment of the growth
prospects of the Indian economy and require the given the severity of the economic downturn in
Commission to carefully calibrate its assessment 2008-09 and 2009-10 that has affected the direct
of the future growth of GDP and correspondingly, as well as the indirect tax base.
of the revenue base. The judgement as to when the 6.15 For non-tax revenues we have used the
process of recovery would become sustained may be 2009-10 (BE) projections made by the Central
critical in this regard. Our consultations with leading Government in all cases except receipts under
professional economists have also underscored this economic services. In the case of economic services,
point. Accordingly, the Commission has not assumed using the BE figure (Rs. 60,039 crore) as the base
a constant GDP growth rate over its award period seemed inappropriate as this figure included
but has employed a calibrated approach. It has also receipts from the auction of 3G–a one-time
been urged by the experts that the Commission phenomenon which, if included in any growth
maintain, at least, the level of adjustment envisaged projections, would significantly overestimate the
in the Fiscal Responsibility and Budget future non-tax receipts under this head. In view of
Management (FRBM) Act 2003, during its award
this consideration, the receipts under other
period, given that the Indian economy may quite
communication services have been reassessed at
reasonably be expected to revert to a trend nominal
Rs. 23,335 crore as against the BE figure of Rs.48,335
growth rate of at least 13.5 per cent in the medium
crore, thereby reducing the overall receipts under
term.
economic services to Rs.35,039 crore.
6.12 Accordingly, we have adopted nominal
6.16 On the non-plan side we have reassessed
growth rates of 12.50 per cent in 2010-11, 13 per
some of the items of expenditure as per the rationale
cent in 2011-12 and 13.5 per cent in each of the years
given in paras 6.17 to 6.20.
from 2012-13 to 2014-15. The MoF projections are
broadly similar, while those of the Planning 6.17 The MoF memorandum urged the
Commission are higher. The inflation scenario Commission to take account of the revision of
adopted by us is in line with the RBI projections of salaries and pensions due to the implementation of
a rate of 4.5 per cent to 5 per cent. MoF, however, the Sixth Central Pay Commission’s recommendations.
has assumed a lower inflation rate of 3 per cent to In the 2009-10 (BE) figures, the impact of increased
4.5 per cent over the period 2010-15. pay and allowances was already subsumed.
6.13 In order to project the revenues and Moreover, these figures also include the arrears
expenditures of the Centre for the period 2010-15, payable. Since the arrears are a one-time payment,
we have followed a two-step approach comprising for the purposes of projection of the salary
a reassessment of the base year figures and, based component, this amount was deducted from the
on this, their projection for the award period (2010- relevant items of non-plan expenditure (viz.
15). The 2009-10 (BE) figures reflected in the Union defence; police; other general, social and economic
Budget presented on 6 July 2009 have, by and large, services and non-plan expenditure of UTs with
been taken as the base for projections. However, legislature).
80
Chapter 6: Union Finances: Assessment of Revenue and Expenditure
6.18 The expenditure estimates for debt waiver (i.e. Rs. 1760 crore) for future subsidies on account
to farmers in 2009-10 (BE) are not expected to of LPG so as to protect below poverty line (BPL)
recur. Hence, these have not been included in the families transiting from superior kerosene oil to
assessment of the base year. However, the Ministry LPG, as envisaged in the Chaturvedi Committee
of Finance has provided estimates of expenditure Report. Thus, the reassessed base year figure for fuel
under this head for 2010-11 and 2011-12. These have subsidy amounts to Rs.10,760 crore (9000 + 1760).
been incorporated in the expenditure projections There should be no off-budget financing of such
for the above years as these are policy commitments subsidy in future years and this approach would be
pursuant to the original decision on debt relief. No in line with our ToR.
fresh commitments to such expenditure in the
6.20 The non-plan, non-FC grants for states and
future have been allowed.
UTs have been modified by deducting the
6.19 Budget 2009-10 has provided for Rs. 3109 non-plan grants given to the states and UTs as
crore as petroleum subsidy, even though the actual compensation for Value Added Tax (VAT)/ Central
subsidy on this item is much higher–the balance Sales Tax (CST). The reassessed amount is
amount being borne through off-budget Rs. 5154 crore as against Rs. 14,176 crore in 2009-
mechanisms. In keeping with our additional ToR 10 (BE).
with regard to bringing all off-budget liabilities on
government account, the 2009-10 base year figure Projections for the Award Period
for petroleum subsidy has been reassessed. The
reassessment is based on the estimates of the High Tax Revenues
Powered Committee on Financial Health of Oil
6.21 The Commission considered various
Companies headed by Shri. B.K. Chaturvedi. As per
scenarios with respect to future tax revenue
this report, the estimated annual subsidy on
streams. If all taxes grow at the Trend Growth Rate
kerosene is Rs. 30,000 crore. This subsidy was
(TGR) for the period 1999-2000 to 2007-08, the
based on the international crude price of US $140
implied buoyancy would be 1.43. TGRs for shorter
per barrel. With mean crude prices assumed to be
periods yield even higher buoyancies. It was felt that
around US $70 per barrel, the subsidy would come
down by at least Rs. 15,000 crore. The report also assuming such a high buoyancy for the projection
suggests a number of reform measures which, once period would be unrealistic, given that the
implemented, could reduce the subsidy bill to 60 2004-08 period witnessed an unprecedented
per cent of the estimated level. Accounting for such growth in the direct and service tax base. Thus, it
reform measures, which the Commission feels could was decided to moderate the buoyancy estimate and
be implemented without delay, the kerosene subsidy the tax revenues for the period 2010-15 have been
bill would be around Rs. 9000 crore. On Liquefied projected by using an overall buoyancy of 1.33. This
Petroleum Gas (LPG) sales, the Ministry of is derived by calculating the buoyancy of gross tax
Petroleum has estimated an under-recovery of revenue, excluding service taxes for the period
Rs. 17,600 crore for 2008-09 (at the prevailing 1999-2008 (service taxes had a high outlier
crude oil prices). With mean crude prices assumed buoyancy of 4.54 during this period). This has been
to be around US $70 per barrel the subsidy amount applied on the base year estimates of individual
would come down by at least Rs. 8800 crore. It is taxes to arrive at year-wise projections for revenue
assumed that of this, GoI will apportion 20 per cent from each tax item. The resultant tax-GDP ratios
81
Thirteenth Finance Commission
are reported in Table 6.1. Our projections are compared to the projections of the Planning
somewhat lower than the projections of the MoF. Commission, particularly for the latter half of the
period; (iii) the game-changing tax reforms that
6.22 As detailed in Chapter 5, the introduction
are slated during this period, such as GST and the
of GST will not affect tax revenues as the rates
Direct Tax Code, will have a positive impact on
implemented would be revenue-neutral. On the
revenues as these reforms will further stimulate
contrary, as explained, it is likely to improve
growth and improve tax compliance and finally,
revenues. This ‘upside’ potential of GST has not
(iv) our projections for the proceeds from
been factored into our projections and, to that
disinvestment are less than the potential that we
extent, they are conservative.
have identified in Para 6.44. Further, there is a
Non-tax Revenues possibility of additional revenues from sale of non-
performing land assets. These additional revenues
6.23 Under non-tax revenues, interest receipts can comfortably finance the new expenditures
from State and UT Governments have been arising out of implementation of the The Right of
projected to decline by 2 per cent each year from Children to Free and Compulsory Education Act
the base year onwards. This is to take account of (RTE), 2009 or to meet unforeseen external
the fact that the Centre’s loan portfolio to states challenges.
is reducing as past loans are amortised and no
new loans are being issued, as per existing policy. Non-plan Expenditure
Interest receipts from railway capital are
6.25 With regard to non-plan expenditure, the
projected to remain constant at the base year level
memorandum of the MoF asserts that such
of 0.09 per cent of GDP. Profits from RBI/banks
expenditure is, to a large extent, highly inflexible in
have been assumed to grow at the same rate as
the short run. We recognise this as being true for
that of GDP. On the basis of our consultations
interest payments, defence revenue expenditure,
with the Ministry of Petroleum and Natural Gas
salaries, pensions and transfers to the states and
and the Department of Telecommunication as
UTs. As mentioned by the Ministry of Defence, we
well as various sector experts, receipts from
recognise that modernisation of the defence forces
economic services have been projected to grow is a high priority. We are also of the view that there
at an annual rate of 18 per cent over the exists considerable scope to rationalise
reassessed base year. For all other items, the TGR expenditures on explicit subsidies. The expenditure
for the period 1999-2008 has been applied on the projections have been made with these aspects in
base year figures to get the annual projections. mind and the reasoning underlying them has been
As a proportion of GDP, the non-tax revenue is outlined in paras 6.26 to 6.38.
projected to increase from 2.01 per cent in 2010-
11 to 2.24 per cent in 2014-15. MoF projected a 6.26 For interest payments we have used
decline in this ratio from 2.00 per cent to 1.70 projections consistent with the growth in adjusted
per cent during the same period. However, in view debt stock allowed by the FRBM path. The details
of the immense potential of sectors like of adjustments made in the debt stock are explained
in Chapter 9. We have projected interest payments
telecommunication and petroleum, we feel that
using an average interest rate of 7.35 per cent for
the MoF projection is an underestimation.
debt contracted till 2009-10 and 7.5 per cent for
6.24 Our revenue projections for the Union the subsequent years on the incremental borrowing
Government for the period 2010 to 2015 have required to finance the fiscal deficit of the previous
considerable upside potential. This is due to the year. This would imply that interest payments as a
fact that: (i) the revenue buoyancy that we have proportion of non-plan expenditure would range
assumed is less than the MoF buoyancy estimate; between 35.21 per cent and 39.99 per cent during
(ii) our growth assumptions are conservative the award period.
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Chapter 6: Union Finances: Assessment of Revenue and Expenditure
6.27 For defence expenditure, the Ministry of affecting the consumption capabilities of the target
Finance has projected a growth rate of 7 per cent groups. This approach is also in continuity with the
per annum for defence revenue expenditure. normative approach of the Eleventh and Twelfth
Capital expenditure is projected to grow at 10 per Finance Commissions.
cent per annum. The Ministry of Defence has
6.29 Against this backdrop, the Commission has
emphasised the need to provide adequately for
made normative projections with regard to future
enhanced force multipliers. We also recognise the
expenditure on subsidies, keeping in mind the need
need to provide for some real growth in defence
for reform as well as the need to better target
revenue expenditure, to allow for adequate
subsidies to enhance the access of target sections
depreciation and maintenance. We are of the view
of the population to key merit goods. Hence, in this
that the Finance Ministry’s projections address
respect, we have digressed from the estimates of
these needs and have, therefore, adopted them.
MoF which has assumed an annual growth of 5 per
The resultant projection for the overall annual
cent for food, fertiliser and fuel subsidies.
growth rate of defence expenditure works out to
8.33 per cent. Further, we are of the view that there i) Food: The intention behind providing food
exists considerable scope to improve the quality subsidy is to improve the food security of the
and efficiency of defence expenditure through vulnerable sections of society. With this in mind,
increased private sector engagement, import we have allowed for 50 per cent subsidy on the
substitution and indigenisation; improvements in minimum support price (MSP) to BPL families and
procedures and practices and better project full subsidy for the beneficiaries under Antyodaya
management, within the parameters of Anna Yojana (AAY). These subsidy figures have
Government of India’s policy. Efforts in this been based on the calculations of the Department
direction will further expand the fiscal space of Food and Public Distribution which assume MSP
available for defence spending. to increase 10 per cent annually. On this basis the
average annual growth in food subsidies for the
6.28 The Commission has taken the view that long
projection period is 8.87 per cent.
term fiscal consolidation and improvement in the
quality and effectiveness of government expenditure ii) Fertiliser: The fertiliser subsidy needs to be
would require realignment in the expenditure targeted to ensure food security and self sufficiency
priorities of the Central Government. If the Central while preventing wasteful and suboptimal use of
Government is to expand its provisioning of the much fertilisers. In addition, we are informed that given
needed national public goods, it will need to the oligopolistic nature of the global fertiliser
streamline expenditures. This is particularly true in market, with India as a large buyer of key fertilisers,
the case of subsidies. Without subsidy reform it will restraining inefficient fertiliser consumption would
not be possible to improve the supply of national also result in price benefits in the medium term.
public goods and also maintain fiscal prudence. We The Department of Fertilisers, in their interaction
are of the view that it is, at the present juncture, with the Commission, also made the point that a
feasible to implement reforms in the administration reworking of the subsidy regime would promote
of key subsidies pursuant to the recommendations optimal use of fertilisers as well as better targeting
of the various high-powered committees and other of the subsidy. With these considerations in view,
institutions that have provided valuable suggestions we have taken as a reference point the
in this regard. We have closely consulted with the recommendation of the PM’s Economic Advisory
relevant line ministries on the subject to ensure that Council (EAC) to restrict this subsidy to 120
such reforms can be implemented without adversely kilograms1 of fertiliser per cultivator household. On
1
The report of the Economic Advisory Council (2007) states that 120 kg of fertiliser (comprising 80 kg of nitrogenous fertiliser,
30 kg of phosphatic fertiliser and 10 kg of potassic fertiliser) provide a well balanced total of 60 kg of nutrients. This will meet the
full requirement of small and marginal farmers and will also meet the self-consumption food requirement of medium and large
farmers. The balance requirement is to be met from the free market.
83
Thirteenth Finance Commission
this basis, the estimated financing requirement for to provide adequately for non-wage operational
this subsidy was Rs. 10,980 crore in 2006-07. We expenditure and taking into account the expected
consider this to be a reasonable target for 2014-15 increase in the strength of the central police force.
if oil prices (which are closely aligned with the
6.32 Pensions have been projected to grow at an
freight on board (FOB) unit price of the fertiliser
annual rate of 9 per cent during the award period.
basket) remain around US $70 per barrel. To
MoF had projected this to grow at 9 per cent for the
achieve this in the terminal year, the 2009-10 (BE)
first three years and 10 per cent for the two
figure has been reduced equi-proportionately each
subsequent years. In view of the fact that the effect
year so that the forecasted subsidy provision in
of increased outgo on pension has already been
2014-15 is equal to the target figure of Rs. 10,980
factored into the 2009-10 (BE) figures, we did not
crore. We have not allowed for any inflation as we perceive any rationale for providing a differentiated
expect trend prices to be lower than those extant in growth rate for this item of expenditure.
2006-07, not least due to the expected inhibition
of cartel formation in international fertiliser supply 6.33 Election expenditure has been assumed to
during the Finance Commission award period. be largely on account of the next general election to
the Lok Sabha due in 2014-15. We have provided
iii) Fuel: The reassessed base year figure has been for 5 per cent of the base year expenditure in each
kept constant in nominal terms over the projection year (except 2014-15) for by-elections. For 2014-15,
period, reflecting the need to control this subsidy if however, in anticipation of the general election, the
the parameters underlying the calculation (chiefly amount provided has been calculated by applying
oil prices) do not change in this duration. Our a 5 per cent compound growth rate to the election
assumption is that any real growth will be financed expenditure incurred in 2009-10.
through efficiency savings.
6.34 Expenditure on other general services and
iv) Other subsidies: For each of the projection years economic services is projected to grow at an annual
the number, equivalent to the figure in the base year, rate of 5 per cent over the reassessed base year,
has been kept constant in nominal terms, reflecting making full provision for inflation. Expenditure on
the need for some real reduction in these subsidies. social services is projected to grow at an annual rate
6.30 Such reduction in subsidies is important to of 7.5 per cent over the reassessed base year,
improve equity as well as growth in the economy. As reflecting the Central Government’s intention to
shown in a study undertaken by National Institute expand spending on human development. MoF had
of Public Finance and Policy (NIPFP), these subsidies projected an annual growth rate of 7 per cent for
are regressive, in the sense that in per capita terms, other general services (including police), economic
they are relatively higher for the higher income states. services and social services.
Further, large subsidies, such as in fertilisers and 6.35 For each of the projection years, the
LPG, are likely to be regressive on an inter-personal 2009-10 base year figure for the non-plan grants
basis also, as fertiliser subsidies are higher in per and loans to public enterprises is assumed to remain
capita terms in irrigated areas and LPG subsidies are constant in nominal terms. Non-plan expenditure
higher in per capita terms in urban areas. The of the UTs without legislature is projected to grow
reduction of these subsidies, by freeing up fiscal at the trend growth rate of 12.1 per cent, calculated
space, will facilitate increase in the supply of public for the period 2004-05 to 2008-09 (RE), over the
goods such as schools, village roads and irrigation, reassessed base year.
which will lead to higher growth by inducing greater
6.36 As compared to the Centre, the states had to
private investment.
pay a higher effective rate of interest on the National
6.31 For police expenditure, we have projected Small Savings Fund (NSSF) loans taken till
growth at an annual rate of 7.5 per cent per annum 2006-07. In order to correct this, the Commission
over the reassessed base year figure, given the need has recommended interest relief on the NSSF loans
84
Chapter 6: Union Finances: Assessment of Revenue and Expenditure
contracted by the states till 2006-07, with the methodological issues involved in first taking GBS
precondition that the states will have to enact the as a demand on the resources of the Central
FRL as outlined in Chapter 9. Total relief on this Government and then recommending transfers to
account amounts to Rs. 13,517 crore. The Centre has the states. Projections of GBS are available only
to compensate this amount to the NSSF. for the Eleventh Five-Year Plan period (2007-12)
Accordingly, the non-plan revenue expenditure of and do not fully cover our award period. Further,
the Centre will increase by an equivalent amount. these are not broken down year-wise and the
Provision has been made for this. estimates of each year are arrived at during the
finalisation of the annual plans. There is a
6.37 All other items, viz. non-plan, non-FC grants
tendency to project GBS at higher than realisable
to states and UTs; grants and loans to foreign
levels in order to have a larger plan size. After fully
governments; non-defence, non-plan capital
providing for the projected GBS and other
expenditure; non-plan loans to states and UTs; and
demands on the resources of the Centre, there may
other non-plan loans have been assumed to grow
not be enough fiscal room to fully meet the
at 5 per cent annually over the base year, thus
requirements of the Centre on non-plan revenue
making full provision for inflation. However, postal
account and maintain the current level of transfers
deficit is assumed to decline at 2.19 per cent per
to states, while bridging the gaps in the non-plan
annum, which is also its trend rate of decline for
revenue accounts of the states. The requirements
the period 1999-2008.
on the non-plan revenue account, of both the
6.38 In the aggregate, as per our estimates, Centre and the states, being mostly committed in
non-plan expenditure, as a proportion of GDP nature, have to be provided for in the first instance
decreases from 10.06 per cent in 2010-11 to 7.73 and cannot be provided for in a residual manner.
per cent in 2014-15. As per the MoF’s projections, There are also major problems in assessing the
the percentage comes down from 10.74 to 8.80 requirements of GBS normatively. After examining
during the corresponding period. Our normative all these aspects, we are of the view that there are
projection with respect to subsidies is the major far too many practical difficulties in taking the GBS
reason for this divergence. for plan as a demand on the resources of the Centre
and that the balance of advantage clearly lies in
Plan Expenditure arriving at the GBS residually, as has been the
6.39 In making our recommendations we have practice in the past.
been asked to consider, among others, the 6.41 The MoF memorandum projects an
demands on the resources of the Central aggregate GBS of Rs. 23,49,515 crore during the
Government, especially on account of the period 2010-15. As per the Planning Commission’s
projected GBS to the central and state plans. In submission, the requirement of GBS for the same
the dispensation of recent Finance Commissions, period is projected at Rs. 26,23,701 crore. Based on
GBS emerged as a residual after fully providing for our assessment of revenue receipts and non-plan
the requirements of the Centre on the non-plan revenue expenditure and the FRBM path with
revenue account. If the GBS is taken upfront as a respect to the revenue balance as spelt out in
demand on the Centre’s resources, the Finance Chapter 9, the plan revenue expenditure is a
Commission transfers will have to be tailored residual. The capital component of plan
accordingly. This, in a way, reverses the current expenditure, as explained in the next section, has
practice of arriving at the GBS residually and been arrived at after projecting a total capital
alters the basic character of the Finance expenditure consistent with the FRBM target and
Commission transfers. adjusting for the non-plan capital expenditure
6.40 We have examined the matter in detail and determined normatively. The resultant GBS (or plan
our approach has been guided by the expenditure) as projected is consistent with the
85
Thirteenth Finance Commission
estimates of the MoF and the Planning Commission. unlisted PSUs and taking the average of the two, the
More importantly, the GBS for the last two years of market value of the unlisted PSUs is estimated at
the Eleventh Plan (i.e., the first two years of the approximately Rs. 3,50,000 crore.
FC-XIII award period) is more than the projections
6.45 Assuming divestment of unlisted PSUs from
of the MoF for the respective years. The total GBS the present holding of 96.79 per cent to 90 per cent
for these two years, taken together, is also higher to enable them to be listed, an amount of around
than that projected by the Planning Commission. Rs. 24,000 crore would be unlocked. Also, listing
Bearing in mind the anticipated increase in the of these enterprises would enhance their quality of
states’ contribution to Centrally Sponsored corporate governance. Further, for listed
Schemes in the Twelfth Plan period and the need companies, divestment from the present holding of
to be prudent in the expansion of these schemes, 84.73 per cent to 51 per cent could imply additional
we are of the view that this adequately provides for resources of approximately Rs. 3,41,000 crore.
the Centre’s GBS commitments. Similarly, for banks, bringing down the government
6.42 Annexes 6.1 to 6.4 provide the reassessed share from the existing 60 per cent to 51 per cent
base year estimates for 2009-10 and normative would entail a resource availability in the vicinity
estimates for 2010-15, of the Central Government’s of Rs. 17,000 crore. Thus, in the aggregate, an
revenue receipts and revenue expenditure. approximate amount of Rs. 3,81,000 crore (unlisted
PSUs – Rs. 24,000 crore, listed PSUs — Rs.
Capital Receipts and Expenditure 3,41,000 crore, listed banks – Rs. 17,000 crore)
could become available to the government.
6.43 The major item of non-debt capital receipts Assuming that this is pursued over five years, i.e.,
for the Centre has been the recovery of loans and till 2010-15, this would provide resources to the tune
advances from the states. In view of the of around 0.88 per cent of GDP every year on an
discontinuation of any further loans extended by the average.
Centre to the states, this source of receipt will decline
6.46 The Government of India has recently decided
steadily over the years. However, disinvestment of
that disinvestment proceeds accruing to the National
Central Public Sector Undertakings (PSUs) remains
Investment Fund between April 2009 and March
a potent source of non-debt capital receipts and
2012 will be available for utilisation in full on capital
needs to be pursued actively, given the desirability
expenditure for social sector programmes. We feel
of disinvestment in central PSUs to allow more space
this policy is unduly restrictive and needs to be
to private enterprises for the delivery of goods and
liberalised. We recommend that the proceeds should
services.
also be utilised for augmenting critical infrastructure
6.44 For PSUs which are listed, the government and the natural or environmental capital of the
equity invested is valued at approximately economy. The increasing investment needs of the
Rs. 10,00,000 crore as per market capitalisation social sectors, such as education and health to
information for mid-October, 2009. The available promote inclusive growth and the infrastructure
estimates of the average Price/Earning (P/E) ratio requirements of a growing economy will require
and Price/Book (P/B) ratio of these enterprises stand greater capital expenditure. This will also ‘crowd in’
at 22.4 and 3.4, respectively. The market value of private investments in the economy. There are also
listed nationalised banks, also in mid-October, 2009 emerging needs such as environmental protection
is estimated at about Rs. 1,90,000 crore. The latest and growing urbanisation. For instance, the new
available book value and the profit/loss position for solar energy programme launched under the
the unlisted PSUs is for 31 March 2008. This is of National Action Plan on Climate Change will require
the order of Rs. 82,934 crore. Applying the P/E and enormous investment to increase the supply of solar
P/B ratio of the listed PSUs, respectively to the energy in India. Equally, there will be a need for a
earnings (i.e., profit/loss) and book value of the rapid urban transport system in almost all the major
86
Chapter 6: Union Finances: Assessment of Revenue and Expenditure
cities. These programmes require large investments. be reined in. The issue has been discussed in
Hence, the entire proceeds from disinvestment detail in Chapter 9.
should be utilised to augment the budget resources
6.50 Based on the above estimates of capital
of the Centre to finance the changing requirements
receipts and accounting for the revenue deficit/
of the public capital portfolio.
surplus on the basis of the norms adopted for
6.47 For the award period, however, we have revenue receipts and revenue expenditure, total
assumed that non-debt capital receipts, including capital expenditure is projected at 3, 3.13, 3.75, 3.88
disinvestment, will increase equi-proportionately and 4.50 per cent of GDP, respectively in each of
from 0.5 per cent of GDP in 2010-11 to 1 per cent of the years 2010-11 to 2014-15. Plan capital
GDP in 2014-15. expenditure has been arrived at as a residual after
6.48 One of the major under-performing assets providing for the normatively determined non-plan
of the government is institutional land of the capital expenditure (i.e., the capital component of
central PSUs. The information provided to us on defence expenditure; non-plan loans to states, UTs,
the details of the unutilised lands of central PSUs public sector enterprises and foreign governments;
by the concerned ministries is patchy and and other non-plan loans).
incomplete. This highlights the need for a proper
inventory of land held by the PSUs. We would Summary of Recommendations
strongly urge that the records of landholdings of
6.51 To summarise, our recommendations are:
PSUs be properly maintained so that this scarce
resource is put to productive use or made available i) The policy regarding use of proceeds from
for other public projects, or else sold. Such a disinvestment should be liberalised to
measure will facilitate further development include captial expenditure on critical
projects without recourse to land acquisition and infrastructure and the environment, in
involuntary displacement. addition to capital expenditure on the social
sectors (Para 6.46).
6.49 Central Government borrowings have been
projected keeping in view the FRBM target of ii) Record of landholdings of the PSUs should
achieving a debt-GDP ratio of 45 per cent in be properly maintained to ensure that this
2014-15. The Commission has noted with concern scarce resource is put to productive use or
that the debt-GDP ratio of the Centre has been made available for other public projects, or
unsustainably high and feels that this should else sold (Para 6.48).
87
CHAPTER 7
State Finances: Assessment of Revenue and
Expenditure and Structural Reforms
7.1 This chapter has two parts. In the first part expectations of efficiency are similar across
we have explained the methodology adopted to states. This would require some improvements
assess and project the revenues and expenditure during the award period, especially for those
of the states during our award period. In the second states that are lagging behind.
part we have examined those aspects which
7.5 The most important variable to be projected
critically impact state finances and require the
is the Gross State Domestic Product (GSDP) of
urgent attention of states. We have also made
states, which forms the base for various other items
certain recommendations pertaining to reforms in
like tax revenues. For the purpose of GSDP
this regard.
projections, we have examined the projections
assumed for the Eleventh Five-Year Plan. These
A. Assessment of Revenue
projections are relevant for only two years of our
and Expenditure:
award period and precede the recent economic
7.2 In the previous chapter we have analyzed the slowdown. We have, therefore, modulated the
state of Union Finances and made projections for Planning Commission estimates to factor in the
the Union Government. For a proper assessment impact of this slowdown and the subsequent gradual
of the required proportion of devolution from recovery to arrive at the yearly estimates of GSDP
central taxes and the quantum of grants-in-aid from for states during the award period.
the Centre to the states, it is essential to assess the
7.6 We had requested the states to provide us their
finances of the states and make projections thereon.
projections of receipts and expenditure. We find that
7.3 The finances of the states have experienced the states have projected Own Tax Revenues (OTR)
deterioration during the latter half of the previous of 7.5 per cent of GSDP in the year 2014-15 as
decade as well as the initial years of this decade, compared to 7.9 per cent in 2007-08. Similarly, they
subsequent to which the states undertook far- have projected Non-plan Revenue Expenditure
reaching fiscal reforms that have resulted in (NPRE) at 12.8 per cent of GSDP in the year
considerable improvement. In our assessment we 2014-15 as compared to 12.3 per cent in 2007-08.
have taken these fiscal reforms into consideration. A consolidated picture is presented in Table 7.1 and
state-wise details are given in Annex 7.1.
Basic Approach
Table 7.1: Past Performance and Projections of
7.4 Assessing the finances of states is a
the States’ Receipts and Expenditure
challenging task because of the diverse nature of
(per cent of GSDP)
their economies as well as their expenditure
2001-02 2007-08 2014-15
needs. Keeping in mind this diversity, we have
followed a normative approach to ensure that OTR 6.6 7.9 7.5
NTR 1.7 2.0 1.0
given their respective levels of fiscal capacity, NPRE 14.4 12.3 12.8
88
Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
7.7 In our assessment the projections given by Year Plan, to be achieved by the terminal year. The
states do not adequately reflect the past trend or growth rates have been fixed in each of the years
the current economic outlook. We have, therefore, of the award period so as to reach the targeted
decided to make our own detailed assessment of the growth rate in the terminal year in such a way that
revenue and expenditure of each state. In doing so, the all-state GSDP is consistent with the GDP
we have taken into consideration not only the past projected for the award period.
trend, but also recent decisions relating to the
recommendations of the Sixth Central Pay Base Year
Commission (CPC), which have had a significant
7.12 The comparable GSDP estimates are
impact with regard to the states’ finances. We have
available till 2006-07. Our first task is to project
adopted a normative approach for receipts and
GSDP for the base year. In order to estimate the
expenditure while assessing the revenue and
GSDP for each state for the base year and the
expenditure of the states.
intervening period, the GSDP figures for the
7.8 The basic approach followed is to assess the primary, secondary and tertiary sectors were
base year (2009-10) estimates, based on the past projected separately for each state, and then
performance and the budget estimates of the states. aggregated to obtain the state GSDP. As the first
On the basis of the base year estimates and the step, the Trend Growth Rate (TGR) for the all-state
norms adopted, we have projected each item for GSDP at factor cost as well as for GDP at factor cost
the award period. This approach is similar to the has been calculated separately for each sector and
approach followed by previous Commissions. In the ratio of TGRs of the all-state GSDP and GDP
this part we detail our methodology and the has been arrived at for each of the three sectors.
underlying assumptions of our approach. This ratio has been applied to the sectoral GDP
growth rate for 2007-08 to obtain the all-state
Gross State Domestic Product GSDP growth rate for each sector, for 2007-08.
7.9 Gross State Domestic Product has been used This, in turn, has been applied to the all-state GSDP
as a proxy for fiscal capacity in projection of Own for 2006-07 to obtain the all-state GSDP for each
Tax Revenues of the states. It has also been used as sector, for 2007-08.
the base to determine the fiscal reform path for states. 7.13 As the next step, the annual average growth
7.10 There are some differences in the rate for each state for each sector has been
methodologies for computing GSDP across states. calculated for the period 2001-07. These growth
Following the practice of past Commissions, we rates have been proportionately adjusted with a
requested the Central Statistical Organization common factor across all states in such a way that
(CSO) for comparable figures of GSDP. They have the individual state GSDP estimates for each sector
given their estimates, which we have adopted. As is for 2007-08 add up to the sectoral all-state GSDP
well known, GSDP is estimated at factor cost. estimated, as explained in the previous para. The
sectoral GSDP figures for each state have been
7.11 Comparable estimates are available for the
added to arrive at the aggregate GSDP for
1999-2000 series, from 1999-2000 to 2006-07.
2007-08. This process has been repeated for the
This data has been used to obtain GSDP estimates
2008-09 and 2009-10 figures.
for 2007-08, 2008-09 and 2009-10. The
estimation has been carried out sectorally for each 7.14 It has been observed that the ratio of the
state, aggregated and then adjusted for consistency aggregate GSDP and GDP at market prices has been
with the Gross Domestic Product (GDP) growth stable at 0.8 across the entire series (the ratio has a
rates. Subsequently, a target rate of incremental coefficient of variation of 1 per cent). To ensure
growth has been fixed for each state depending on consistency between the growth rates for GSDP and
the projected growth rate for the Eleventh Five- GDP, the aggregate GSDP figures for 2007-08,
89
Thirteenth Finance Commission
2008-09 and 2009-10, calculated as explained in above. As stated in Chapter 6, we have projected a
the previous para, have been further adjusted with nominal growth rate of 13.5 per cent for GDP for
a constant factor across all states in such a way that the terminal year. To ensure consistency with the
the ratio between the all-state aggregate GSDP and GDP growth rate for the terminal year, the states in
the GDP at market prices equals the average of the the first, second and third categories have been
ratios of aggregate GSDP of all the states and the assigned terminal-year nominal GSDP growth rates
GDP at market prices. This gives us the estimates of 11.5 per cent, 12.5 per cent and 14.5 per cent
of GSDP at market prices for 2007-08, 2008-09 and respectively. For special category states, the lesser
2009-10 as well as the corresponding growth rates. of the category growth rate and TGR has been taken
as GSDP growth rate for the terminal year. This may
Projections be seen from Figure 7.1.
7.15 The Plan document for the Eleventh 7.16 For the period 2010-15, a growth path has
Five Year Plan has projected real growth rates by been worked out such that the ratio of aggregate
state for the plan period. Based on these growth GSDP to GDP is held constant at the level used for
rates, the states have been divided into three estimation of the base year GSDP. The incremental
categories, viz. states with projected real growth rate growth has been distributed across states in such
of less than 8 per cent, states with projected real a way that the ratio of year-on-year improvement
growth rate between 8 and 9 per cent, and states for each state to the total improvement to be
with projected real growth rate of 9 per cent and achieved during the award period is same for all
90
Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
the states. State-wise, year-wise projected GSDP this compensation obtained by the states
growth rates are given in Annex 7.2. (otherwise classified as grant-in-aid to states) as
OTR of states.
Own Tax Revenue
7.17 Para 6(v) of our Terms of Reference (ToR) Base Year Estimates
states that: In making its recommendations, the 7.21 The base year estimates for OTR have been
Commission shall have regard, among other arrived at on the basis of buoyancies observed in
considerations, to ‘the taxation efforts of the the states over the years 2001-08. The buoyancies
Central Government and each State Government have been used to obtain tax growth rates for 2008-
and the potential for additional resource 09 and 2009-10 with the help of the GSDP growth
mobilisation to improve the tax-Gross Domestic rates estimated for these years. Further, the tax
Product ratio in the case of the Union and tax-Gross growth rates for 2008-09 have been applied to the
State Domestic Product ratio in the case of the actual figures for 2007-08 to arrive at the estimates
States.’ for 2008-09, upon which the growth rate for
7.18 Own Tax Revenue (OTR) of the states 2009-10 has been similarly applied to calculate the
mainly comprises Value Added Tax (VAT), state projected OTR for 2009-10. This figure has been
excise, stamp duty and registration fee, and motor compared with the budget estimates for 2009-10
vehicles and passenger tax. The share of OTR within and the higher of the two has been taken as the base
the own revenue resources of the states has year estimate.
increased in recent years. 7.22 FC-XII had suggested a detailed fiscal
7.19 We have analyzed and projected Own Tax reform path to enable each state to reach the
Revenue together, as was done by both FC-XII and targeted revenue balances by 2008-09. All states,
FC-XI. However, deviating from the FC-XII barring West Bengal, Punjab and Kerala,
methodology, which used the TGR, we have made successfully achieved this target by 2007-08 itself.
use of buoyancies for projection of the base year In the case of these three states, however, the
and have assumed an improvement path for the revenue balance is seen to fall far short of their
tax-GSDP ratio for the projection period. The revised estimates for 2008-09, resulting in
reason for this deviation is that a TGR-based continued revenue deficits in their budget estimates
approach would not have captured the assumed for 2009-10. Other than these three states that have
changes in GSDP. Our GSDP estimates for the base either not adopted a Fiscal Responsibility and
year are lower than the trend-based estimates due Budget Management (FRBM) framework or have
to the recent economic slowdown. In other words, not adhered to it, performance of all the states has
buoyancies are more relevant than TGR for been exemplary, although to varying degrees.
estimation of tax growth rate in the base year Keeping this in mind, we do not feel the need for
in terms of ensuring that the impact of the any base year normative correction for OTR for
slowdown on GSDP is translated into an equivalent them, as was done by some of the previous Finance
impact on OTR. Commissions.
7.20 Since 2005-06, the states have replaced the 7.23 However, for the three states that have not
sales tax regime with a VAT regime. The initial been able to eliminate revenue deficit, we observe
negative impact of VAT on the OTR of states has that the budget estimates for 2009-10 for OTR are
been compensated by the Centre. In order to ensure higher than the projections arrived at using the
that the trend is properly captured, we have treated buoyancies. The budget estimates of OTR for West
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Thirteenth Finance Commission
Bengal, Punjab, and Kerala exceed our projections standard deviation below the mean, viz. Gujarat,
by 0.9 per cent, 1.29 per cent, and 0.77 per cent of Rajasthan, Goa, Uttar Pradesh, Maharashtra, and
GSDP respectively. Thus, taking the higher of the Haryana, have been projected to reach the mean
two normalises the base year estimates of these level by the end of the projection period with equal
three states. annual adjustments. For the rest of the states, i.e.,
those with tax-GSDP ratios above the mean, the
Projections tax-GSDP ratios have been projected to remain at
7.24 For the purpose of projecting Own Tax their base year levels during the projection period,
Revenues of the states we have defined an thereby implicitly assigning a buoyancy of one.
improvement path for the tax-GSDP ratio of the With this, the mean tax-GSDP ratio for general
states. While the average tax-GSDP ratio has category states for the terminal year will improve
improved from 6.6 per cent in 2001-02 to 8.4 per to 8.9 per cent and the standard deviation will
cent estimated in the base year, the degree of reduce to 1.4 per cent.
performance varies across states. Thus, there is a 7.27 For special category states, the mean and
need to link improvement in the tax-GSDP ratio standard deviation in the tax-GSDP ratio for the base
over the base year level with an attempt to close year are 6 per cent and 2.3 per cent respectively, with
the gap between states. For this purpose we have the maximum at 9.2 per cent and minimum at 2.4
adopted different paths for the general and special per cent. The special category states have a lower
category states. mean and higher standard deviation as compared to
7.25 For general category states, the mean the general category states, since these states have
tax-GSDP ratio and standard deviation are 8.6 per wide variations in their tax capacities and
cent and 1.7 per cent respectively in the base year. composition of GSDP. All north-eastern states except
Within these, the highest tax-GSDP ratio is 11.8 per Sikkim fall below the mean. The states with tax-GSDP
cent and the lowest is 5.1 per cent. Depending on ratio more than one standard deviation below the
their respective tax-GSDP ratio estimates in the mean, viz. Nagaland, Manipur, Mizoram, and
base year, each state has been given an Arunachal Pradesh, are all hilly states with limited
improvement path over the projection period, tax potential. These states have been projected to
keeping in mind the need to ensure that the improve their tax-GSDP ratio by 0.3 per cent by the
targeted improvement is realistic and reduces the terminal year with equal annual adjustment. The
inter-state variation in tax-GSDP ratios. For this states with tax-GSDP ratio less than one standard
purpose the states have been divided into three deviation below the mean, viz. Tripura, Assam, and
groups: those with tax-GSDP ratio above the mean, Meghalaya, are slightly better off in terms of economic
those less than one standard deviation below the capacity and tax potential and have been projected
mean and those more than one standard deviation to improve their tax-GSDP ratio by 0.5 per cent by
below the mean. the terminal year with equal annual adjustments. Of
the remaining states, i.e., states with tax-GSDP ratio
7.26 The states with tax-GSDP ratio more than
above the mean, those which are below the lowest
one standard deviation below the mean, viz. West
level required to be achieved by any general category
Bengal, Jharkhand, Bihar, and Orissa, have been
state (μ−σ of general category states) are projected to
projected to reach the ‘one standard deviation
reach that level by the terminal year with equal annual
below the mean level’ by the end of the projection
improvement. The ratios for the rest of the states are
period with equal annual adjustments. Similarly,
projected to remain constant at their base year levels
the states with tax-GSDP ratio less than one
during the projection period. With this, the average
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
tax-GSDP ratio will improve to 6.3 per cent and the on loans extended by the State Governments, return
standard deviation will reduce to 2.2 per cent by the on investments made, royalty from minerals,
terminal year. The levels of base year tax-GSDP ratios forestry and wildlife, commercial operations
and the improvement envisaged may be seen in undertaken by the states, user charges from
Figure 7.2. The state-wise projected tax-GSDP ratios irrigation and other services.
for each year is given in Annex 7.3. 7.30 Most of the items have been assessed on
trends based on data for the years 2001-08. This
7.28 One of the upcoming tax reforms that will
period has been chosen to avoid complexities due
impact the tax structure at the state level is
to bifurcation of three of the states.
introduction of Goods and Services Tax (GST). With
introduction of GST, various state level taxes will get 7.31 For the purpose of estimating non-tax
subsumed in it. There would be major reshuffle in revenues in the base year, receipts under general,
the tax bases of both the Centre and states consequent social and economic services have been
disaggregated. Within these, items which are
to introduction of GST. However, since the proposed
major contributors to the states’ own non-tax
GST will be revenue neutral, our projections shall not
revenues or those which do not follow the general
get affected by it.
pattern, have been further disaggregated and
projected. These are interest receipts, dividends
Own Non-tax Revenues
and profits, lotteries, miscellaneous general
7.29 Own Non-tax revenues of states comprise services, elections, royalty, forestry and wildlife
receipts from a variety of sources including interest and irrigation.
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Thirteenth Finance Commission
7.32 In the course of this exercise, we have made during the years 2008-09 and 2009-10 respectively,
suitable adjustments in the data for the years 2001- to the loans outstanding at the end of 2007-08 as
08 to ensure uniformity across states as well as reported in the finance accounts, and subtracting
across years within a state. While some states have the recoveries made in these two years. The
departmentally run power, transport and dairy outstanding loans and advances at the end of 2009-
utilities, some have statutory boards and yet others 10 have been projected as constant over the
have corporatised entities for provision of these projection period. An interest rate of 7 per cent has
facilities. Thus, in some cases, transactions from been applied to these outstanding loans and taken
power, transport and dairy enter the consolidated as the interest receipt in each of the years.
fund, while in other cases they don’t. To ensure 7.37 The interest rate is chosen such that it is
uniform comparability, receipts from power, lower than the average cost of funds for the state,
transport, and dairy have been removed from the yet allows a positive real interest rate. This has been
data series (the same as has been done for done because most of these loans have been
expenditure under these heads). extended to state PSUs, and in some cases the states
7.33 For lottery operations gross receipts are may have decided to provide an implicit subsidy.
accounted as Own Non-tax Revenue of the states In addition some of these could be short term loans
and gross expenditure is accounted as non-plan bearing lower interest rates.
revenue expenditure. This leads to a notional
increase in both receipts and expenditure of the Dividends and Profits
states and also introduces year-to-year volatility. To 7.38 Similarly interest receipts, dividends and
ensure that these changes do not affect projections, profits on government investments have been
net lottery receipts (receipts net of payments) have projected normatively on the basis of level of
been taken under receipts. investment. Past levels of return on investment,
7.34 The amount of debt waived under the Debt which have largely been dismal, have been ignored.
Consolidation and Relief Facility (DCRF) We have projected dividends and profits at 5 per
recommended by FC-XII has been accounted as non- cent on the total amount of investment as at the
tax receipts under ‘miscellaneous general services’ end of 2007-08, including those in power utilities,
in the finance accounts. This item is not shown as reported in the finance accounts and held
separately in finance accounts, but indicated as a constant over our award period.
footnote, and that too, not uniformly. Thus, instead
of taking the figure of debt waiver from finance Elections
accounts of states, we have used the corresponding 7.39 Receipts from elections have been considered
figure provided by the Ministry of Finance and as a five-year block (2010-15). Projections for receipts
deducted this amount to ensure that it does not get for each year in this block have been made on the
captured in either the trend or the base year. basis of receipts of the corresponding years in the
previous block (2005-10) by applying a 5 per cent
Interest Receipts increase successively for five years. Thus, projections
7.35 We have observed that the current level of for 2010-11 were arrived at by assuming 5 per cent
recovery on loans advanced by the states is growth for five years over the receipts for the
extremely poor. Therefore, we have projected the year 2005-06.
interest receipts of states on a normative basis
without linking it to the current level. Lotteries and Miscellaneous
General Services
7.36 In order to project interest receipts, the loans
outstanding at the end of 2009-10 have been 7.40 Within general services, receipts under
estimated by adding the revised estimates and ‘miscellaneous general services’ do not include a
budget estimates of loans and advances made uniform set of items across states. This head
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
includes receipts from lottery operations for the coal and lignite have been added under the relevant
states that have online or paper lotteries, and has, year. Further, the projections of receipts from
thus, been deducted and treated separately. For royalties on upcoming on-shore oilfields and the
lotteries, the higher of net receipts in 2009-10 (BE) share in profit petroleum as indicated by the
and average of 2006-07, 2007-08 and 2008-9 (RE) Ministry of Petroleum have also been added.
has been taken as the base year estimate and has
been held constant, in nominal terms, over the Power
projection period. 7.44 As stated earlier in this chapter, the power
7.41 Receipts from ‘other miscellaneous general sector is run departmentally in some of the states,
services’ also include the amount of debt waiver while in others, it is run through statutory boards/
received by the states under the DCRF scheme, which corporations. To ensure uniformity across states,
has been deducted, as explained earlier. However, it receipt and expenditure of the power sector has been
is observed that the year in which these receipts have removed for making projections. Some states have
been booked in the finance accounts of a state may projected revenues from power sector for the award
differ from the year in which MoF has made the period; others have not provided these separately.
releases. To nullify the effect of any mismatches we We have projected these revenues on the basis of a
have taken the average of 2005-06 to 2008-09 (RE) detailed study sponsored by the Commission for the
as the base year estimate for ‘other miscellaneous award period and added to the non-tax revenues of
general services’. Since this covers the entire period the relevant states. This revenue would accrue from
during which debt relief has been provided, all entries sale of surplus power available to states after taking
get accounted for. For the projection period we have into account their own power requirements.
assumed a growth of 5 per cent.
Forestry and Wildlife
Royalties 7.45 Receipts from forestry and wildlife for the
7.42 For the purpose of estimating royalties from base year have been taken to be the higher of
minerals, we have taken the higher of 2009-10 (BE) 2009-10 (BE) and average of 2006-07, 2007-08 and
and average of 2006-07, 2007-08 and 2008-09 (RE) 2008-09 (RE). During the projection period, we have
as the base year estimate. There has been a major held the receipts constant at the base year level in
shift in the policy for levy of royalty on coal and lignite nominal terms in order to take account of the current
as well as on major minerals, changing from specific restriction on extraction of forest resources.
to partial/full ad valorem basis. The policy change
for coal and lignite occurred earlier and its impact Irrigation
has been captured in the receipts of the states. 7.46 Receipts from irrigation have been estimated
7.43 However, royalties on other major minerals on cost recovery basis. The current level of recovery
may not have been accounted for in the 2009-10 (BE) from irrigation projects is at 23 per cent of the non-
figures as the shift to ad valorem regime took place plan revenue expenditure on irrigation, which is very
only around mid-2009. For this purpose, estimates low and needs to be improved in order to ensure
of receipts of royalties from major minerals, other viability of irrigation projects. Keeping this in mind,
than coal and lignite, were sought from the Ministry we have normatively enhanced receipts from irrigation
of Mines, GoI for the period 2009-15. The amount from 25 per cent of NPRE on irrigation in 2010-11 to
shown for each state in 2009-10 has been deducted 35 per cent in 2011-12, 45 per cent in 2012-13, 60 per
from their base year estimates and the residual, cent in 2013-14 and 75 per cent in 2014-15.
including royalty from minor minerals and coal and
Other Non-tax Revenues
lignite, has been projected to grow at the rate of 5
per cent. To this, the projections provided by the 7.47 The residual items under each service have
Ministry of Mines for all major minerals other than been projected together. To arrive at the base year
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Thirteenth Finance Commission
estimates, the 2007-08 actuals have been projected between one head of account and another (within
to grow at the 2001-08 TGR for each service, for the consolidated fund) or from the consolidated fund
each state. These estimates have been compared to the public account. These entries, except those
with 2009-10 (BE) figures and the higher of the two relating to Consolidated Sinking Fund and
has been taken as the base year estimate. Guarantee Redemption Fund, have been removed
7.48 For the projection period, receipts under from the NPRE series. These funds were created by
other general services, social services and other most states as per the recommendation of FC-XII,
economic services have been projected to grow at 8 and in order to ensure consistency, we have taken
per cent, 12 per cent and 13 per cent respectively, transfers to them into consideration in our
which are the 2001-08 all-state Trend Growth Rate assessment. However, in case the fund has been
(TGR) of aggregate receipts under these categories closed at any point of time, all transfers in this regard
after excluding certain outlying states. for the previous years have also been removed from
the data series.
7.49 All the above items have been added to arrive
at the projections of non-tax revenues of the states. 7.54 We have come across cases where receipts
of states that should have been credited to the
Non-plan Revenue Expenditure consolidated fund have been credited to funds
maintained outside the consolidated fund. These
7.50 Non-plan revenue expenditure (NPRE) of
resources have been used for activities that are
the states has been projected in a manner similar
primarily the responsibility of the respective State
to that of the non-tax revenues. Some of the
Governments. Such a practice is not transparent
significant items, viz. salaries, pensions, interest
and should be discouraged. Hence, these receipts
payments, food subsidy, committed liabilities and
and expenditure have been treated as if they were
maintenance expenditure for roads and irrigation
taking place through the consolidated fund.
projects, have been projected separately while the
remaining items have been projected in aggregate. 7.55 We have deducted the average non-plan
grants other than FC grants received during the three
7.51 We have used expenditure data for 2001-08
year period (2005-08) from expenditure under ‘other
(post-bifurcation of the three states) while estimating
general services’ since these grants are not projected
the NPRE of states.
on the receipt side. Of the Finance Commission
7.52 Some adjustments have been made in the grants, non-plan revenue deficit grant and grants for
2001-08 data series for NPRE to ensure uniformity education and health were in the nature of gap filling
in data across states. Expenditure on power, grants, acknowledging that the current level of
transport and dairy has been removed, as in the case expenditure is low and needs to be augmented and,
of receipts, in order to ensure that states where these thus, have not been deducted from the data series.
sectors are run departmentally are brought on the State-specific grants are for expenditure items that
same footing as the states that have separate are more in the nature of capital projects and, in
boards/corporations/companies providing services addition, are difficult to capture under the exact
in these sectors. Further, in our assessment we have expenditure head, and have thus not been deducted
not taken into consideration any subsidies in these either. Grants for local bodies have also not been
sectors. Only food subsidy has been projected on a deducted since these have not always been accounted
normative basis. Expenditure on calamity relief has for under the heads recommended by the Controller
been removed as the needs of states on this account General of Accounts (CGA), a problem that we have
have been assessed separately. addressed in Chapter 10. The remaining grants, as
released from 2005-06 to 2008-09, have been
7.53 ‘Contra-entries’ and ‘transfer from and to deducted from the relevant heads in the 2001-08
funds’ are those entries in the accounts that do not data series of the states.
have any cash outgo but are adjustments either
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
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Thirteenth Finance Commission
as reported in the finance accounts. While doing worked out, the impact on state pensions is
so, certain normative adjustments have been made estimated to be 21 per cent.
to ensure that per employee, per month salary, is
7.65 Thus, pension payment for the base year has
capped at the level of the average for all states.
been estimated at 21 per cent over the 2008-09
7.62 FC-XII had recommended that the states pension payments, arrived at by applying TGR over
should follow a recruitment policy such that salary the actual figure for 2007-08. Pension payments
expenditure does not exceed 35 per cent of revenue post-2009-10 have been projected to grow at 10 per
expenditure net of interest payments and pensions. cent. For states having their own Pay Commissions,
We have limited the impact of pay revision to salary a procedure similar to that adopted for salaries has
expenditure within this normative ceiling and the been adopted.
expenditure over and above the ceiling has been
successively reduced by 10 per cent of the amount Arrears
every year. 7.66 While the treatment of State Pay Commission
7.63 Our exercises in normalisation have (SPC) recommendations has been, more or less,
attempted to capture state specific situations. Newly uniform across all states, the treatment of arrears
created states of Chhattisgarh, Jharkhand and varies widely. Some states have decided to stagger
Uttarakhand drew our attention to the fact that they payments, while the total amount of arrears has been
have faced severe staff shortages since the paid in some other states. Further, the amount of
bifurcation of the state cadres. Acknowledging this arrears is a function, not only of the structural
fact we have assumed a net increase of 1 per cent in changes in pay, but also of the time lag between the
the working strength for these states as against 1 effective and actual dates of implementation. While,
per cent attrition in other states, while projecting payment of the arrears may fall partially within the
their salary expenditure. Another exercise has been projection period, these actually pertain to
carried out for states such as Karnataka and Kerala, expenditure for a prior period. Due to these factors
whose own Pay Commissions’ recommendations it is not possible to assess the liability of states on
were implemented during the period 2001-08. For account of arrears on a uniform normative basis. We
these states, their last pre-State Pay Commission have, therefore, decided not to include arrears in our
salary has been projected to grow at 6 per cent to assessment of NPRE of states.
arrive at the 2006-07 salary expenditure,
Interest Payments
whereafter, the common procedure outlined in Para
7.60 has been adopted. 7.67 Interest payments have been projected on
the basis of the debt stock indicated in the fiscal
Pension reform path shown in Chapter 9. For the years
7.64 Estimating pension payments by adopting 2008-09 and 2009-10 the lower of Revised
the procedure used for salary is difficult because Estimates (RE) or 3.5 per cent of GSDP and Budget
data on pensioners and their profiles is generally Estimates (BE) or 4 per cent of GSDP respectively,
not available. We have calculated the impact of has been taken as the fiscal deficit for projection of
pension revisions post-Sixth CPC on state finances debt stock.
by assuming that the ratio of the impact would be 7.68 The debt stock has been divided into three
the same as that in the case of the Fifth CPC components. The breakup of the outsanding debt
between central and state pensions. The impact of stock at the end 2009-10 for each state is given in
pension revisions after implementation of Sixth Annex 7.4. The first component, non-interest
CPC on central finances without arrears has been bearing loan, has been pegged at the 2007-08 levels
estimated at 23 per cent in 2008-09 over the in nominal terms on the assumption that the fiscal
pension bill of 2007-08. Applying the ratio thus deficit will be financed only through borrowings.
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
Any increase in non-interest bearing debt would not expenditure in the corresponding year of the
be due to the fiscal deficit. This component has been previous block (2005-10) by providing 5 per cent
deducted from the debt stock for purposes of increase compounded annually for five years. Thus,
projecting interest payments. projections for 2010-11 were arrived at by assuming
5 per cent growth for five years over the receipts for
7.69 Out of the interest bearing debt, the
the year 2005-06.
borrowings with the highest cost are the loans from
the National Small Savings Fund (NSSF). Within
Compensation and Assignment to
the outstanding debt stock of NSSF loans of Rs. 4.3
Local Bodies
lakh crore, Rs. 4.1 lakh crore pertains to loans
contracted till 2006-07, for which we have 7.72 Compensation and assignment to local
recommended an interest rate of 9 per cent (Chapter bodies pertain to one major head of account, namely
9). The remaining stock of Rs. 20,000 crore carries 3604. This item contains transfer of funds from the
an interest rate of 9.5 per cent, implying an effective states to their local bodies and, in most cases, is
rate of 9.02 per cent on the entire stock of NSSF governed by the decision on implementation of
loans. We have used this rate to estimate interest award of the respective State Finance Commissions
payments on the NSSF loans. Gross collection under (SFC). Thus, we have assumed that the budget
NSSF has dropped in recent years and net collection estimates would be as per the decisions taken
for 2008-09 has been negative. In line with the regarding SFC awards and have thus been adopted
institutional reforms recommended by us in as the base year estimate. To enable real increase,
Chapter 9, we have assumed that there would be no 8 per cent growth has been projected on the base
net addition to the debt stock of NSSF for the base year over the projection period.
year and the projection period.
Committed Liabilities
7.70 The remainder of the debt stock comprises
open market loans, loans from the Centre, and loans 7.73 Para 6(ix) of the ToR requires the Commission
from financial institutions such as National Bank to consider the following while making its
for Agriculture and Rural Development (NABARD), recommendations: ‘.... the expenditure on the non-
Life Insurance Corporations (LIC)/General salary component of maintenance and upkeep of
Insurance Corporations (GIC). Central loans have capital assets and the non-wage related maintenance
been consolidated at 7.5 per cent by expenditure on plan schemes to be completed by 31st
FC-XII, which is also the interest rate for most of March, 2010 and the norms on the basis of which
the market loans. Rural Infrastructure specific amounts are recommended for the
Development Fund (RIDF) loans are cheaper, while maintenance of the capital assets and the manner of
some of the negotiated loans may carry an interest monitoring such expenditure.’
rate marginally higher than 7.5 per cent. Thus, for
7.74 The expenditure on operation and
this component of the stock, we have assumed an
maintenance of plan schemes completed by the end
interest rate of 7.5 per cent. Based on the projected
of a plan period becomes a ‘committed’ liability on
debt stock and the interest rates assumed, the
the non-plan account from the following year. As
interest payments have been calculated for each
per the guidelines of the Planning Commission,
state for each year in the projection period.
maintenance expenditure of completed plan
Elections schemes is transferred to the non-plan revenue
account at the end of the relevant Five-Year Plan.
7.71 As in the case of receipts, expenditure on States find it difficult to incorporate this
elections does not follow an annual trend, and has expenditure in their projected non-plan revenue
been projected as a five year block (2010-15). expenditure since: (i) Finance Commission award
Projections for expenditure in each year for this and Five-Year Plan periods are not co-terminus; (ii)
block have been made on the basis of the the task of identifying completed schemes and
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Thirteenth Finance Commission
estimation of their committed liabilities across states for 2011-12, the last year of the Eleventh
various departments of a state is an elaborate and Plan, the plan revenue expenditure in 2008-09
time consuming exercise and (iii) there is a (RE) has been projected to grow at 10 per cent,
perceived risk of resources for the plan shrinking which broadly reflects the long term trend growth
and the plan size coming down. Thus, there is a need rate of plan revenue expenditure of the states.
for separate assessment of these liabilities. Thirty per cent of this plan revenue expenditure
7.75 On the lines of previous Finance has been adopted as maintenance expenditure for
Commissions, we have estimated maintenance 2012-13, which has been projected to grow at 5 per
expenditure for capital works, i.e., on maintenance cent in 2013-14 and 2014-15.
of irrigation projects, and roads and bridges 7.79 Special category states have highlighted the
separately in paras 7.82 to 7.85 of this chapter and problems faced by them in transferring maintenance
discussion in this section is confined to expenditure of completed schemes to the non-plan
maintenance expenditure arising out of plan account, mainly due to low provision of committed
revenue expenditure. liabilities while assessing their non-plan revenue
expenditure in the past. The decision of previous
7.76 The important parameters in estimating the
Finance Commissions in this regard was based on
maintenance expenditure of completed plan schemes
the fact that these states are allowed to divert 20 per
are the relevant years of the award period for which
cent of the Normal Central Assistance (NCA) under
such expenditure needs to be provided, norms for
the plan to meet non-plan expenditure. The current
projecting the expenditure, treatment for special
practice of meeting the committed liabilities by way
category states and liabilities arising out of
of utilisation of 20 per cent of NCA under state plans
maintenance of assets created under Centrally
is non-transparent and has led to many states often
Sponsored Schemes (CSS).
not transferring the committed expenditure to the
7.77 The ToR require us to take into consideration non-plan side and has also led to a lower real plan
the non-wage related maintenance expenditure on expenditure of these states. Further, not providing
plan schemes to be completed by 31 March 2010. for committed liabilities in these states results
As the Eleventh Plan will conclude in 2011-12, we diversion of their legitimate allocated plan assistance
feel there is no need to factor in the maintenance for non-plan purposes making the entire planning
expenditure for the first two years of our award process less transparent. Therefore, we have treated
period. We, therefore, propose to take into account these states on par with general category states for
the requirement of states for maintenance of plan the provision of committed liabilities. We also
schemes to be completed during the Eleventh Plan recommend that, with adequate provision for
for the period 2012-13 to 2014-15. Such an approach committed liabilities, the practice of diversion of plan
is consistent with that adopted by the previous assistance to meet non-plan needs of special category
Commissions. states should be discontinued to leave these states
with adequate plan expenditure.
7.78 Assessing the expenditure on committed
liabilities of the completed plan schemes has been 7.80 States are mandated to not only share the
problematic due to lack of accurate information cost of implementing the CSS, but also to maintain
from the states. The information received from the such schemes upon completion. We feel that
states was widely varying and, prima facie, not committed liabilities arising out of these schemes
reliable. Thus, we have adopted the norm of 30 per should be included in their NPRE to ensure that
cent of the plan revenue expenditure of states the gains of these schemes are not lost. However,
assessed for the year 2011-12 to estimate the as noted by some previous Commissions, there is
committed liabilities in accordance with the need to make suitable adjustments for those CSS
practice of recent Finance Commissions. For which are likely to continue in the next plan and,
assessing the plan revenue expenditure of the therefore, have no significant implications for non-
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
plan expenditure. The major schemes in this as maintenance expenditure. While the ministry
category are Sarva Shiksha Abhiyan (SSA), National suggested separate norms for maintenance of surface
Rural Health Mission (NRHM), Indira Awas Yojana and lift irrigation schemes, the breakup of irrigation
(IAY) and Integrated Child Development Scheme potential into these two categories of schemes was
(ICDS) which have a long term development available only for two states. Thus, it would be
perspective and are likely to continue during our difficult to adopt norms separately for flow and lift
award period. Only the states’ contribution is irrigation schemes. Given the need for adequate
reflected in the state budgets for SSA, NRHM, and provision for maintenance of irrigation schemes, we
IAY while the central share towards these schemes have adopted the norm of Rs. 1175 per hectare for
flows directly to the executing agencies. In case of the utilised potential and Rs. 588 per hectare for the
ICDS the entire scheme allocation is reflected in the unutilised potential for major and medium irrigation
state budgets as central funds are also routed schemes respectively, in the base year, implying a
through the states’ consolidated funds. Budgetary step-up of 52 per cent from the norms adopted by
allocations for 2008-09 for the four schemes FC-XII. After adjustment for inflation, with an
annual growth of 5 per cent thereafter, these would
mentioned above have been excluded from the plan
reach the level of Rs. 1500 per hectare for utilised
revenue account of 2008-09 (RE) of each state for
and Rs. 750 per hectare for unutilised potential in
projections as detailed in Para 7.78. The projected
the terminal year of our award period.
committed liabilities for each state is given in Annex
7.5. 7.83 For minor irrigation works, the ministry
suggested an expenditure norm of two-thirds of that
7.81 The ToR require us to consider only
for major and medium irrigation schemes. We have
non-wage related expenditure for the completed plan restricted this to half, in pursuance of the practice
schemes. The states have expressed the view that with adopted by previous Finance Commissions.
emphasis on social infrastructure, plan schemes in Accordingly, we have provided the norm of Rs. 588
this sector involve large wage related expenditure and per hectare in the base year for only the utilised
that the states would not be able to afford potential of minor irrigation schemes and have
maintenance expenditure for such schemes. They ignored the unutilised potential as being
have also drawn our attention to the fact that no insignificant. For special category states, the
distinction is made between the wage and non-wage ministry had suggested a step-up of 60 per cent on
components of the committed liabilities of the the maintenance norms. However, drawing upon
Centre. After due consideration of the matter, we the practice of our predecessors, we have allowed a
have decided not to make a distinction between the 30 per cent step-up on these norms for the special
wage and non-wage component of maintenance category states.
expenditure of the states in order to ensure that the
7.84 We have used state-wise utilised and
sustained delivery of public services created under
unutilised potential, as reported by the MoWR at
the plan schemes is not disrupted. Such an approach
the end of the Tenth Plan, to work out maintenance
would also ensure symmetry in treatment between
expenditure. For each state, the norm-based
the Centre and the states on this issue.
estimates for 2009-10 have been compared with
those of 2009-10 (BE), and the higher of the two
Irrigation
has been adopted as the base year estimates to
7.82 For projecting the maintenance expenditure ensure that the current level of expenditure is
on irrigation schemes (major heads 2700, 2701 and retained in the case of states that are spending more.
2702), norms were obtained from the Ministry of An annual growth rate of 5 per cent has been applied
Water Resources (MoWR). The ministry suggested over the base year estimates so worked out to
an amount of Rs. 1500 per hectare for major and generate projected expenditure levels in the forecast
medium surface irrigation and Rs. 3000 per hectare period. The projected NPRE on irrigation for each
for lift irrigation schemes for the utilised potential state is given in Annex 7.6.
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Thirteenth Finance Commission
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
economy and state finances is positive. Reforms in working PSUs is increasing, indicating their
these areas are critical for any fiscal reform inability to finalise at least one account per year. A
programme to succeed. Issues relating to irrigation more disquieting feature is that state governments
have been covered by us in this chapter in our continued to invest significant sums (Rs. 49,237
projections for receipts and expenditure, and also crore as on September 2008) in working PSUs
in chapters 4 and 12. In this section we elaborate whose accounts were in arrears without any
on the current status of State Public Sector assurance in the form of audited accounts that
Undertakings (SPSU), the power sector and other their continued investments were being properly
aspects which impact state finances. utilised and accounted for. The position in respect
of non-working companies is worse. In one state,
Performance of State Public audit of PSUs is pending from as early as 1992-93.
Sector Undertakings We have come across a public sector undertaking
7.93 The total turnover of 1160 State PSUs was whose accounts have not been finalised for the past
Rs. 3.07 lakh crore in 2007-08, representing abut 37 years. Such a position is extremely detrimental
to financial accountability as well as fiscal
6 per cent of GDP. The aggregate investment in
transparency. Keeping in mind the contingent
these PSUs is about Rs. 3.69 lakh crore comprising
liabilities of the State Governments on account of
Rs. 1.41 lakh crore in equity and Rs. 2.28 lakh crore
these PSUs, any future switchover to accrual
in loans from all sources. They employ over 18 lakh
accounting will be dependent upon such a problem
persons. They thus occupy an important place in
being tackled upfront.
the national economy. However, their operations
have not been encouraging. They incurred an 7.95 We therefore recommend that:
aggregate loss of Rs. 5930 crore in 2007-08. Their
i) All State Governments should proactively
accumulated loss stands at Rs. 65924 crore. PSUs
ensure clearance of the accounts of all PSUs
of only nine states have earned aggregate profits.
through focused assistance and close
Some states have been reporting losses of more
monitoring of progress. If necessary, they
than Rs. 2,000 crore per annum on account of
could, in consultation with the Comptroller
PSUs. States need to assess the viability of their
and Auditor General of India (C&AG),
loss making PSUs and identify those functioning
outsource the preparation of accounts to
in non-core areas for closure.
qualified personnel.
Finalisation of Accounts ii) States should use the flexibility provided by
7.94 An essential requirement for identification C&AG to clear the backlog in their accounts.
of viability is the availability of audited financial Statutory auditors could take up audit for
accounts of state public sector undertakings as well succeeding years before the accounts for a
as other companies which get substantial support particular year are laid before the AGM, and
as grants-in-aid from the government. During our provide certification after the relevant
visits to the states, we have come across certain accounts are approved. The company can
disturbing features. Despite their statutory hold a series of general body meetings
obligations to finalise their accounts and lay them (GBMs) within a short period to clear the
before the Annual General Meetings (AGMs) within arrears in its accounts.
six months of the close of the financial year, there iii) All State Governments should draw up a
is a huge deficit in compliance. More than 70 per road map by March 2011 for closure of non
cent of the state PSUs have their accounts in arrears. working companies in consultation with the
There were 2329 annual accounts in arrears from Accountant General. All pending
607 working state PSUs as of September 2008. It is commercial and other disputes should be
disturbing that the accounts arrears in respect of resolved promptly–if necessary by
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Thirteenth Finance Commission
7.97 The State Governments should actively 7.101 Since one of the fundamental triggers for
consider withdrawal/reduction of SPSUs in non- introduction of market reforms was the bankrupt
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
finances of the State Electricity Boards (SEBs), owned power distribution utilities in the country.
progress in expansion of power supply and Other elements of cost have been appropriately
introduction of market reforms needs to be projected. Power purchase costs have been
accompanied by corresponding improvements in estimated for each utility through a detailed
utility finances to prevent competitive markets from modelling exercise. The employee expenses
adversely impacting utility finances so as to enable estimated reflect the impact of the Sixth CPC on the
adequate availability of power generation capacity utility payroll costs. These projections are exclusive
with the utilities. of the subsidies extended by state governments to
the utilities.
7.102 We have noted the impact of power sector
performance on the finances of the states. This is 7.105 As against the enormous financial losses
indicated above, subsidies in 2007-08 were of the
likely to become even more crucial in future with
order of Rs. 16,950 crore. Thus, there is a large and
increasing exposure of the sector to market forces.
burgeoning uncovered gap. The key reasons for the
We sponsored a study for a detailed analysis of the
increasing gap can be summarised as follows:
finances of state power utilities, their impact on the
overall finances of states and the future roadmap. i) Inability of the state utilities to enhance
The following section highlights the critical issues operating efficiencies and reduce T&D losses
raised in the study and our recommendations for adequately.
improvement of the sector. ii) High cost of short term power purchases. Several
utilities have not planned capacity addition in
Projected Finances of State Power Utilities time and are relying on short term purchases at
7.103 The losses of state power utilities across the high rates (an average of Rs. 7.31 per kwh as
country and the subsidy provided for the period compared to Rs. 4.52 per kwh in 2007-08). The
2005-06 to 2008-09 (BE) are given in Table 7.3. inability to reduce T&D losses has increased the
purchase levels and supply costs.
Table 7.3: Net Losses of State T&D Utilities
iii) Absence of timely tariff increases has
(Rs. crore)
increased the gap and has impaired utility
2005-06 2006-07 2007-08 2008-09 operations further. Some states have not
(RE) (BE)
raised tariffs for the past eight to nine years
Financial in spite of increasing deficits.
Loss 6634 13398 9985 9206
Subsidy 11741 13277 16950 18111 7.106 Tariff increase requirements to bridge the
Total 18375 26675 26935 27317
gap, even in the better performing states, are as
much as 7 per cent per annum on an average
7.104 The projected aggregate losses of state T&D
(considering the 2007-08 subsidy levels). In some
utilities at the 2008 tariffs are given in Table 7.4.
of the poorly performing states the increase in
These financial projections assume a reasonable
requirements is as much as 19 per cent per annum,
reduction in transmission and distribution (T&D)
losses in each state, based on their reported levels which is indeed difficult to achieve. Table 7.5
of T&D losses at present, and a trajectory for indicates the period for which the various states
reduction of such losses, derived from the historical have had tariff revisions.
performance of some of the better performing state- Table 7.5: Status of Tariff Revision in States
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Thirteenth Finance Commission
7.107 It also needs to be noted that in several states of T&D investments presents considerable
where tariff revisions have taken place, the gap has additional burden on state finances. The investment
been reduced by not recognising the true extent of the requirements are indicated in Table 7.7. (These
costs, eventually resulting in large financial deficits. figures refer to only the equity component funded
from state budgets. In addition, utilities would
Financial Exposure of States to require other funds for financing power generation/
Power Utilities transmission projects).
7.108 In addition to direct subsidies and Table 7.7: Future Equity Investment
subventions as referred earlier, equity investments Requirements of Generation, Transmission
made in the state utilities by the respective and Distribution
(Rs. crore)
governments amounted to Rs. 71,268 crore as on
31 March 2008. Barring isolated instances, these 2010-11 2011-12 2012-13 2013-14 2014-15
investments have not been earning financial returns 19802 21455 20717 19824 17739
for the State Governments. Similarly, there is
considerable debt financing to the power utilities 7.111 As against the deficit financing requirements
by the states, aggregating to Rs. 70,652 crore as of indicated in Table 7.4 and capital investment
March 31 2008. Interest on this is generally financing requirements indicated in Table 7.7, the
adjusted against subsidy and subventions, and is states also have some income through interest
rarely paid for in cash. Much of this debt is used
for financing current deficits. Over and above Table 7.8: Projected Income from Power Sector
this, the utilities carry large accumulated (Rs. crore)
losses, which ultimately devolve on the state. 2010-11 2011-12 2012-13 2013-14 2014-15
7.109 The states have also been extending very Electricity Duty 12872 14046 15373 16868 17776
7.110 As already noted, there is a huge gap between 2010-11 2011-12 2012-13 2013-14 2014-15
demand and supply of power in many states, calling 75880 88529 93604 101271 115637
for large investments in the sector. Development
and operation of the T&D network across the 7.112 Clearly, this presents a very large exposure
country is, for the most part, in the hands of for the states, impacting their overall finances. For
state-owned utilities. Apart from investments some of the states, these pose a high risk to the
required for generation from the states, financing stability of their finances. Urgent measures need to
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
be taken to bring about efficiency in the functioning rural pockets. Such measures need to be scaled up
of utilities in the states. significantly in all states.
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Thirteenth Finance Commission
siting of their projects, several states, located far away committees, and implementing the
from the resources, are still focused on developing Guidelines on Corporate Governance issued
plants within the state. These states need to evaluate by the Department of Public Enterprises.
joint ventures (JVs) in or near the coal-rich states to
reduce their costs. New Pension Scheme
7.120 The states also need to initiate more 7.122 The Government of India introduced a
competitive procurement processes. In spite of defined, contribution based New Pension System
sustained deficits in supply, only a handful of states (NPS) with effect from 1 April 2004 to cover all new
have completed Case-11 bid processes till date. This entrants to government service. Twenty-three states
leaves them vulnerable to high-cost market have notified adoption of the NPS for their
purchases. There is urgent need to float more Case 1 employees. The interim Pension Fund Regulatory
tenders since the prices ought to be much more and Development Authority (PFRDA) has set up the
competitive than those for short term procurement. institutional architecture of the NPS. The National
The states also need to initiate appropriate demand Securities Depository Limited (NSDL) has been
forecasting and portfolio optimisation exercises. selected as the Central Record-keeping and
Accounting Agency (CRA) while three pension fund
7.121 In addition, regulatory institutions need to managers, a custodian, and a trustee bank have also
be strengthened and following are required: been appointed. However, despite the formal
i) The regulatory institutions, in general, lack announcements by states, implementation of NPS
sufficient capabilities, which is evident from has been slow across states. Only 12 states have
the fact that even routine tariff increases have executed agreements with the CRA and eight states
not taken place in the recent past. There is have entered into agreements with the NPS Trust,
need for massive capacity building efforts to since states face administrative difficulties in
strengthen them and help them discharge identification of eligible employees and
their functions effectively. There is also need implementing a pay-roll linked arrangement for
to promote consumer education to apprise periodic transfer of individual and government
contributions to PFRDA-regulated service
consumers on the imperative for such
providers. Thus, while GoI has transferred over Rs.
increases. Tariffs should be linked to service
1,117 crore to the pension fund managers, as on 31
levels and performance improvement. Tariff
March 2008, only two State Governments have
reforms (including Multi-year Tariff
transferred a total amount of Rs. 133 crore so far.
implementation as required by the Act) need
The contributions of state employees are lying in
to be expedited.
the state public accounts earning a return equal to
ii) Institutional strengthening and corporate the interest rate allowed for the General Provident
governance of utilities needs reinforcement. Fund. The migration to the NPS needs to be
Unbundling of utilities, a statutory completed at the earliest. In order to facilitate such
requirement, should not be deferred any migration, we have recommended a grant to assist
further. states to build the database of their employees and
iii) Public sector companies, whether they have pensioners (Para 12.108).
raised funds from the market or not, should
follow the provisions of the Company Law Cash Management
in finalising accounts, appointment of 7.123 We have examined the cash balances held
independent directors, appointment of audit by the states in the form of Treasury Bills. With
1
Guidelines issued by the Ministry of Power for procurement of Power by distribution licensees refer to Case-1 as the bidding process for
procurement of power where, location, technology or fuel is not specified by the procurer. The Case-2 bidding process is for location specific
projects where the procurer assists the bidder in securing land, necessary clearances and fuel, etc.
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
reduction in fiscal deficits of the states and these heads has increased from Rs. 99,868 crore in
improved liquidity, states have mostly been in cash 2000-01 to Rs. 1.85 lakh crore in 2007-08. Of course,
surplus in the past few years. Such balances are not the entire accumulation under these heads does not
uniform across states; at the end of 2007-08 about lead to increase in cash balances. Sinking funds,
half the states had cash balances exceeding the total guarantee redemption funds and CRF investment
expenditure for one month. While states require accounts are invested in longer term instruments.
some float for smooth expenditure at the The public account needs to be examined and
implementation level, accumulation of cash beyond reconciled by the states. The public account should
a level can be treated as inefficient, as it would lead not be treated as an alternative to the consolidated
to avoidable interest burden. fund and government expenditure should be directly
incurred from the consolidated fund as far as
7.124 The primary reason for accumulation of
possible, avoiding transfers from consolidated fund
these balances is borrowing more than the fiscal
to the public account.
deficit. While the difference between the net increase
in debt and fiscal deficit in 2001-02, 7.127 Efficient debt management is an essential part
2002-03, and 2003-04 was Rs. 3,998 crore, of cash management. Inefficiencies either way can
Rs. (-) 490 crore, and Rs. 353 crore respectively, this lead to higher interest costs, whether it is
difference increased steeply to Rs. 10,926 crore in accumulation of cash due to unnecessary borrowings
2004-05 and then to Rs. 25,992 crore in or availing of ways and means advances. With
2005-06. The difference, reduced to reduced fiscal deficits, it is essential that states follow
Rs. 16,873 crore in 2006-07 and further to the practice of borrowing on requirement rather than
Rs. 11,116 crore in 2007-08, but still remains on availability. Amongst different sources of debt,
unnecessarily high. These excess borrowings can be
the only source of borrowing on which states have
partially attributed to high inflows from NSSF but
free control is the open market loans. Most of the
the role of sub-optimal debt management cannot be
negotiated loans and external aid (received through
ignored.
Central Government on back to back terms) are tied
7.125 Other factors also contribute to cash to projects, and thus, do not have much flexibility.
balances at the state level. One of them is the Parameters controlling flows from NSSF are also
mechanism of release of central assistance wherein, beyond the control of states. We have indicated the
the grants are released to the states leading to a need for essential reforms in NSSF in Chapter 9.
temporary build-up of cash balances that get used Overall, there should be a directed effort by states
up only in due course of time. The total amount of with large balances towards utilising their existing
plan grants and loans to the states in 2007-08 was cash balances before resorting to fresh borrowings.
of the order of Rs. 0.78 lakh crore. Although, these Many states would be facing larger than usual bullet
transfers are linked to utilisation of previous repayments of market borrowings during the next
releases, there have been capacity constraints on few years due to bonds raised for debt swaps during
implementation in many states. Transfer of unspent the period 2002-05. While estimating the gross
funds to deposit accounts maintained in the public borrowing limits for this purpose, we would
account at the end of the financial year by states encourage states to attempt to use the cash balances,
leads to build-up of cash balances. In addition, flows if these remain substantial at that point in time. The
from the Centre not budgeted by the states and end proposed National Debt Management Office can
of the year releases in CSS, also leads to increase in offer their expertise to the states in their debt
cash balances. management strategies.
7.126 Another important factor is the accumulated
Accounting Reforms
balances in the public account of the states,
especially under Reserve Funds and Deposits and 7.128 Article 150 of the Constitution mandates that
Advances. The total amount outstanding under the accounts of the Union and the states shall be
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Thirteenth Finance Commission
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
7.134 The finance accounts of all states contain 7.136 The salary statement presently included in
clarificatory appendices. Finance accounts of most the state finance accounts provides expenditure
states contain nine appendices which provide details major head-wise, but does not provide the
details of government investments and instances number of employees under each major head. It also
where verification of balances has been delayed, list does not provide the number of employees in each
category and the expenditure on each category. A
incomplete capital works costing Rs 1 crore and
number of State Governments conduct employee
above, and provide expenditure on salaries and
census where they list out the number of employees
subsidies, etc. In addition, FC-XII has recommended
in each grade as well as department-wise. As per
inclusion of seven additional statements in the finance
Section 4 (x) of the Right to Information Act, each
accounts. However, a significant number of finance
public authority is required to publish the monthly
accounts do not provide all the appendices. For remuneration received by all its employees
example finance accounts of 16 states do not provide including the system of compensation, as provided
the appendix on ‘instances where verification and in its regulations. Fiscal Responsibility Legislation
acceptance of balances involving large amounts has adopted by a number of State Governments requires
been delayed’; finance accounts of 10 states do not them to provide a statement giving details on the
provide information on details relating to number of employees in the government, public
reconciliation of balances; finance accounts of four sector and aided institutions, and related salaries
states do not provide a statement of incomplete and pensions as part of the disclosure criteria. There
capital works costing Rs 1 crore and above, and finance exit a number of independent silos with partial
accounts of four states do not provide details of information on the number of employees at each
expenditure on subsidies. We recommend that the list level, and the commitment on their salary. The
of appendices to the finance accounts be standardised statement on salary expenditure needs to be made
keeping in view the recommendations of FC-XII and more comprehensive.
be followed in all states. 7.137 There are certain expenditure items of
states that are not strictly salary expenditure, but
Statement of Subsidies are in the nature of assistance for salary to bodies
7.135 Appendix VI of the state finance accounts such as autonomous organisations and local
is a statement of subsidies disbursed during the bodies. To make the statement of expenditure on
salary more comprehensive, it is recommended
relevant year. This statement is expected to bring
that a statement on the expenditure of State
out all expenditures of the states in the nature of
Governments on assistance for salary also be
subsidy, rather than only those that are classified
separately incorporated.
as subsidy. There are instances where states have
classified subsidies as ‘other expenditure’ or Statement of Maintenance Expenditure
‘grant-in-aid’ and which have, thus not been
7.138 Neither the Central Government nor the
reflected in the finance accounts as subsidies. In
various State Governments provide this
many cases, the accounts of the recipient of
information. It is understood that the Controller
assistance show it as subsidy, and thus, it has been
General of Accounts has identified six major heads–
accounted as subsidy by the Audit report public works; housing; major irrigation; medium
(Commercial) of the C&AG but not in the finance irrigation; minor irrigation and roads and bridges.
account. Thus, in some cases, the statement does The CGA has issued instructions that maintenance
not provide a true reflection of the aggregate expenditure under these heads should be divided
subsidies provided. To be relevant, it is essential into the two sub heads–work charged expenditure
that these statements provide comprehensive data and other maintenance expenditure. However,
on all subsidies. State Governments (and Union Ministries) are yet
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Thirteenth Finance Commission
to carry out these changes in the budget documents. iii) With reference to power sector:
In view of the insight such information will provide
a) Reduction of T&D losses should be
into the quality of the maintenance being
attempted through metering, feeder
undertaken, we recommend that these changes be
separation, introduction of High Voltage
brought into the State and Union Budgets and
Distribution Systems, metering of
finance accounts immediately.
distribution transformers and strict
Summary of Recommendations anti-theft measures. Distribution
franchising and Electricity Services
7.139 To summarise, our recommendations are as Company based structures for efficiency
follows: improvement should be considered
i) The practice of diversion of plan assistance (Para 7.114).
to meet non-plan needs of special category b) Unbundling should be done on priority
states to be discontinued (Para 7.79). and open access to transmission should
ii) With reference to public sector be strengthened. Governance should be
undertakings: improved through state load dispatch
centres and this function should
a) All states should endeavour to ensure
eventually be made autonomous. (Para
clearance of the accounts of all PSUs
7.116).
(Para 7.95).
c) Proper system should be placed to avoid
b) States should use the flexibility provided
delays in completion of hydro projects
by C & AG to clear the back log of PSU
(Para 7.117).
accounts (Para 7.95).
d) Instead of putting up thermal power
c) All States need to draw up a roadmap
plants far away from coal sources, states
by March 2011 for closure of non-
should consider JVs in or near the coal
working companies. Divestment and
rich states (Para 7.119).
privatisation of PSUs should be
considered and actively pursued. (paras e) Case 1 bid process should be extensively
7.95 and 7.97). used to avoid vulnerability to high cost
purchases during peak demand periods
d) Ministry of Corporate Affairs to closely
(Para 7.120).
monitor the compliance of state and
central PSUs with their statutory f) Regulatory institutions should be
obligations (Para 7.95). strengthened through capacity building,
consumer education and tariff reforms
e) A task force may be constituted to design
like multi - year tariff. Best practices of
a suitable strategy for disinvestment/
corporate governance should be
privatisation and oversee the process. A
introduced in power utilities (Para 7.121).
Standing Committee on restructuring
may be constituted under the iv) The migration to the New Pension Scheme
chairmanship of Chief Secretary to to be completed at the earliest (Para 7.122).
operationalise recommendations of the
v) States with large cash balances to make
task force. An independent technical
efforts towards utilising their cash balances
secretariat may be set up to advise the
before resorting to fresh borrowings
Finance Departments in states on
(Para 7.127).
restructuring/disinvestment proposals
(Para 7.98). vi) With reference to accounting reforms:
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Chapter 7: State Finances: Assessment of Revenue and Expenditure and Structural Reforms
113
CHAPTER 8
Sharing of Union Tax Revenues
8.1 One of the core tasks of a Finance bearing on the finances of the Centre and the states,
Commission as stipulated in Article 280 (3) (a) of as well as the overall macroeconomic and fiscal
the Constitution is to make recommendations situation in the country.
regarding the distribution between the Union and
the states of the net proceeds of taxes which are to Views of the Union and the States
be, or may be, divided between them under Chapter 8.3 The Ministry of Finance, in its
I of Part XII of the Constitution and the allocation memorandum, has drawn our attention to the
between the states of such proceeds. This is the most steady increase in the resources transferred to
important task of any Finance Commission, as the states, both by way of the share in central taxes and
share of states in the net proceeds of Union taxes is in the form of grants, particularly since 2005-06.
the predominant channel of resource transfer from The ministry has also indicated that there has
the Centre to states. In the total resource transfers been an increase in the net transfers to states since
recommended by the Finance Commissions, from 2005-06 following the discontinuation of the
the First to the Twelfth, tax devolution accounted practice of on-lending to states. The other issues
for an average of over 84 per cent. The share of tax raised in the memorandum relate to increasing
devolution in the total transfers recommended direct transfers to state level agencies and the rising
varied from 73.9 per cent by FC-VI to 92.3 per cent expenditure of the Centre on food and fertiliser
by FC-VII. In the total transfers recommended by subsidies. The ministry has contended that
FC-XII, tax devolution accounted for 81.1 per cent expenditure on food and fertiliser subsidies, in a
as compared to the 86.5 per cent share way, amounts to negative taxation and that such
recommended by FC-XI. expenditure is incurred on behalf of the states. We
have been requested to keep these points in view
Vertical Devolution while recommending transfers to states. The
8.2 Our first task is to arrive at the share of states ministry has reiterated in its submission made to
in the net tax revenues of the Centre. For this FC-XII that tax devolution should be gradually
reduced to a maximum of 28 per cent of the net
purpose it is necessary to assess the vertical gap
proceeds of central taxes. The ministry has further
between the Union and the states. The vertical gap
contended that the tax devolution recommended by
is the difference between the normatively assessed
FC-XI may not be changed as there has been no
expenditure share and revenue capacities of the
change in the responsibilities of the Centre or states,
Union and the states. Our normative assessment
as envisaged in the Constitution.
of the revenues and expenditures of the Union and
the states is presented in chapters 6 and 7, 8.4 The states have, for the first time, submitted
respectively. In addition, while formulating our a joint memorandum to the Commission. In this
recommendations, we have considered the views of joint memorandum, the Commission has been
the Centre and the states, developments having a urged to enhance the share of the states in the net
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Chapter 8: Sharing of Union Tax Revenues
proceeds of central taxes from 30.5 per cent to at 8.7 The states have advanced a number of reasons
least 50 per cent considering the fact that the states’ for seeking an increase in their share of central taxes.
share in the combined developmental expenditure These include reduction in the size of the divisible
is much higher than that of the Centre. The states pool due to increase in the scope of cesses and
have further urged that the divisible pool of central surcharges; growing vertical imbalances in the form
taxes should include all cesses and surcharges. The of increasing number of Centrally Sponsored
states have contended that the requirement for an Schemes (CSS), declining shares of state plan outlays
increase in their share of central taxes is much and increasing expenditure needs of states in areas
stronger now as the implementation of state-level such as infrastructure development, social and
Value Added Tax (VAT), with its built-in human development, environmental protection and
documentation of value addition, has simultaneously establishment in the wake of the pay revision.
contributed to growth in income and corporate tax
revenues. The memorandum also states that pay Recommendations on
revision of Central and State Government Vertical Distribution
employees will further enhance income tax 8.8 After due consideration of the views of
collections by the Centre. the Centre and states, we are of the opinion that
vertical devolution should be informed by the
8.5 The states, in their individual memoranda
revenue-raising capacity of the Centre and states as
have, without exception, sought an increase in
well as emerging pressures on their expenditure
their share of central taxes. The majority have
commitments. We have observed that buoyancy of
sought an increase from the present 30.5 per cent
central taxes, at 1.49, has been higher than that of
share in net tax revenues of the Centre to 50 per
the states (1.18) during the period 2000-08 and that
cent. Increase in the share of states in a phased
there are reasons to believe that the Centre’s revenue
manner, to 50 per cent, has been suggested by a
buoyancy will continue to remain higher than that
few states. A minimum guaranteed tax devolution
of states. Further, the Centre has the advantage of
to insulate the states from a possible shortfall in
resorting to levy of cesses and surcharges to meet
the Centre’s revenues as compared to the forecast
some of its expenditure commitments. As indicated
made by the Finance Commission has been
in Chapter 4, the share of cesses and surcharges in
suggested by some states. Earmarking of 30 per
gross tax revenue of the Centre increased sharply
cent of the divisible pool to special category states from 3.51 per cent in 2001-02 to 13.63 per cent in
has been suggested by a few states belonging to 2009-10 (BE). This has led to considerable reduction
this category. in the divisible pool as a percentage of gross revenue
8.6 On the issues of cesses and surcharges, views receipts of the Centre.
expressed by states ranged from capping the cesses 8.9 There has been a significant increase in
and surcharges as a percentage of gross tax revenue non-tax revenues of the Centre, particularly from
of the Centre to their inclusion in the divisible pool royalties and the telecommunication sector.
of central taxes. While some states have sought an Receipts from telecommunication services
increase in the indicative ceiling on overall revenue increased from Rs. 8018 crore in 2001-02 to Rs.
account transfers to states from 38 per cent of gross 26,729 crore in 2007-08. Royalties from off-shore
revenue receipts of the Centre recommended by hydrocarbon resources are expected to increase
FC-XII, some others have sought removal of the substantially in the near future. The Union
indicative ceiling on the grounds that such a ceiling Government presently shares profit petroleum only
restricts the scope of central transfers to states. A from on-shore fields under the New Exploration
share in the non-tax revenues of the Centre, such Licensing Policy (NELP). The resource position of
as sale proceeds of spectrum and off-shore royalties the Centre is expected to improve on account of
has been sought by some states. buoyant non-tax revenues. Thus, there is a case for
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Thirteenth Finance Commission
increasing the share of states in the net tax revenue every month. While the Centre is likely to provide
of the Centre. subsidised food grains, states will probably need to
take on the responsibility of putting in place storage
8.10 The increasing number of CSS, though
infrastructure as well as maintaining a
largely funded by the Centre, has, nevertheless,
comprehensive distribution system.
significant expenditure implications for states in
terms of cost sharing, provision of supporting 8.12 As emphasised in the Eleventh Five-Year
infrastructure and committed liability. The sharp Plan document, protection of environment has to
increase in outlays on CSS, thus, requires greater be a central part of any sustainable inclusive
contribution from states as well. There has also been growth strategy. Environment is a residual
an increase in the share of states in the funding of central subject and the responsibility for its
CSS. Under the Sarva Shiksha Abhiyan (SSA), the maintenance rests on all levels of government,
matching contribution of states has gone up from more particularly on state governments. There
15 to 40 per cent. It is proposed to further increase are a number of central and state enactments in
the contribution of states in this regard to 50 per the area of environmental protection. The
cent. In addition, the responsibility of maintaining compliance cost of most central legislation falls
the services and assets created under CSS ultimately on the states. During our visits, states have
rests with the states. There are substantial direct contended that the benefits derived from mining
transfers to implementing agencies in states under were insignificant as compared to the additional
the CSS. The assets created by local bodies through costs in terms of pollution of water resources,
direct transfers have to be ultimately maintained degradation of land, loss of agricultural output,
by states as own revenue generation by these local damage to roads and air pollution. States have
bodies is very poor. also drawn our attention to additional costs
towards rehabilitation of displaced persons. Until
8.11 There are a few other developments as well,
the cost of environmental damages is internalised
which are likely to increase the expenditure
by all polluting industries, state governments will
commitments of states. The Government of India
continue to bear these additional costs. This
has proposed building up of a legal structure of
Commission is required, as per its Terms of
rights and entitlements in a number of areas to
Reference (ToR), to consider the need to manage
ensure provision of uniform quality of services all
ecology, environment and climate change
over the country. Food, social security and land
consistent with sustainable development.
compensation are some of the areas where the
Implementation of such a mandate would require
legislative process has commenced. The Right of
that the states be provided additional assistance
Children to Free and Compulsory Education (RTE)
to enable them to address these issues upfront.
Act, 2009 has proposed free and compulsory
education for all children in the age group of 6 to 14 8.13 The states have a major responsibility in
years. The Act contains a number of provisions terms of provision of both rural and urban
relating to teacher-student ratio, infrastructure infrastructure. The proportion of urban population
facilities in schools and qualifications of teachers. of the country is projected to increase from 28 per
These provisions are likely to have significant cent of the total population to about 38 per cent in
financial implications for states. The President, in 2026. Further, the projected growth of urban
her address to Parliament on 4 June 2009, population will account for two-thirds of the total
announced that a new law—the National Food population increase. The current state of supply of
Security Act would be legislated to set out a core services in the urban areas, viz. water supply,
statutory framework for providing food security. sewerage, solid waste management and street
Under the proposed legislation it is envisaged that lighting, is inadequate by any standards. The higher
every below poverty line (BPL) family will be growth of urban population will add further
entitled by law to a certain quantity of food grains pressure on provision of these services.
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Chapter 8: Sharing of Union Tax Revenues
8.14 The size and scope of infrastructure projects 8.17 There has been a long term stability in the
sponsored by the State Governments is smaller relative shares of the Centre and the states in the
than those sponsored by the Central Government. combined revenue receipts and in the combined
Thus, State Governments have relatively less scope revenue expenditure as discussed in Chapter 4. We
than the Central Government for resorting to are of the view that such fiscal stability be
Public Private Partnerships (PPP) to meet the maintained during our award period. The share of
funding gaps in these projects. This imbalance in states after transfers will be constant only if their
scope is likely to result in states having to depend share in central taxes is increased by a margin by
more on own funding. which the buoyancy of central taxes exceeds the
buoyancy of combined tax revenue.1 As indicated
8.15 Our assessment indicates that the impact of
in para 8.8, the buoyancy of central taxes has been
implementation of the recommendations of the
Sixth Central Pay Commission (CPC) is likely to be higher than that of state taxes. This points to the
asymmetrical as between the Centre and the states. need for increasing the share of states in central tax
Incremental expenditure on civilian and defence revenues. After considering all the reasons adduced
employees at the Centre on account of the in paras 8.8 to 8.15, we recommend that the share
implementation of the recommendations of of states in the net proceeds of shareable central
Sixth CPC is estimated at Rs. 37,130 crore per taxes be raised from 30.5 per cent to 32 per cent.
annum. For the states, the incremental expenditure The recommended increase in the share of states
is estimated at Rs. 49,532 crore per annum. Income in net central taxes is unlikely to impose a burden
tax collection on the additional salary expenditure on the Centre and can be accommodated by pruning
of the Centre is estimated at Rs. 3294 crore, net of and better targeting of subsidies as well as through
tax exemptions. Additional salary expenditure by the restructuring of some of the CSS.
states is likely to improve income tax collections by 8.18 The position with respect to the levy by the
Rs. 4393 crore. Thus, the aggregate additional Centre of additional excise duties in lieu of sales
income tax revenue amounts to Rs. 7687 crore per tax has changed since submission of the report of
annum. Of this additional revenue, Rs. 2306 is likely FC-XII. All the goods under the Additional Duties
to accrue to states as their share in central taxes while of Excise (Goods of Special Importance) Act, 1957
the remaining amount of Rs. 5381 crore accrues to have been exempted from the payment of duty
the Centre. The ratio of net additional expenditure under the Act from 1 March 2006. Following this
on account of pay revision between the Centre and exemption, the Centre had made suitable
states is 1:1.49. Thus, net additional liability on adjustments in the basic excise duty rates on
account of pay revision is higher for states. cigarettes, beedis and sugar. The three goods
8.16 FC-XII recommended the share of states in covered under the tax rental agreement, namely,
net central taxes at 30.5 per cent. For the purpose textiles, tobacco and sugar continue to remain in
of tax devolution, the proceeds of additional excise the list of declared goods under the Central Sales
duties in lieu of sales tax on textiles, tobacco and Tax Act, 1956 thus binding the states to prescribed
sugar were treated as part of the divisible pool of rates in case states decide to levy VAT on these
central taxes. FC-XII further recommended that the commodities. The Ministry of Finance has indicated
states’ share in the net proceeds of shareable central that releases of states’ share in net central tax
taxes shall stand reduced to 29.5 per cent in the revenue are in conformity with the states’ share of
event of the termination of the tax rental agreement 30.5 per cent as recommended by FC-XII. Keeping
and states being allowed to levy sales tax (or VAT) in view these developments, we are not earmarking
on these commodities without any prescribed limit. any portion of the recommended 32 per cent states’
1
Rangarajan, C. and Srivastava, D.K. ‘Reforming India’s Fiscal Transfer System: Resolving Vertical and Horizontal Imbalances’,
Economic and Political Weekly, 7 June 2008
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Thirteenth Finance Commission
share in shareable net central tax revenue as the trends in the overall transfers on revenue
attributable to additional duties of excise in lieu of account. We recommend raising of this indicative
sales tax and are not recommending any reduction ceiling to 39.5 per cent of the Centre’s gross revenue
in the share of the states in the event of levy of VAT receipts. In fact, transfers on revenue account are
on textiles, tobacco and sugar by them. already above 39 per cent of the revenue receipts of
the Centre in the years 2008-09 (RE) and 2009-10
8.19 For the purpose of determining the states’
(BE).
share in central taxes, we have treated proceeds of
service tax as part of the divisible pool. In terms of Horizontal Sharing
the 88th Amendment to the Constitution, the power
to levy service tax is vested with the Centre and 8.22 Recent Finance Commissions have used
distribution of the tax proceeds between the Union equity and efficiency as the two guiding principles
and states shall be in accordance with the principles while recommending inter se shares of states in tax
to be determined by the Parliament. So far, the devolution. The principle of equity addresses the
amendment has not been notified. It is unlikely that problem of differences in revenue raising capacity
it will be notified, in view of the proposed and cost disabilities across states. When capacity is
introduction of the Goods and Services Tax (GST). assessed on the basis of observed revenue collected
FC-XII recommended that in the event of such there is the risk of moral hazard in making the states
notification, it should be ensured that the revenue lax in terms of improving their revenue effort and
accruing to a state under the notification should not managing their finances prudently. The principle
of efficiency is intended to address this issue and to
be less than the share that would accrue to it,
motivate the states to exploit their resource
had the entire service tax proceeds been part
base and manage their fiscal operations in a cost
of the shareable pool. We fully endorse the
effective manner. A combination of these two
recommendation of FC-XII in this regard.
principles has found wide acceptability and
8.20 We are unable to accede to the states’ addressed the concerns of reforming states. Our
demand for inclusion of cesses and surcharges recommendations on horizontal sharing have been
imposed by the Centre in the divisible pool of central informed by these principles.
taxes, as under Article 270 of the Constitution, taxes
8.23 Having decided on the basic principles, the
referred to in Articles 268 and 269, surcharges on
next issue is that of selecting the criteria
taxes and duties and cesses levied for specific
representing these principles. Before we come to
purposes shall not form part of the divisible pool.
the selection of criteria, there is the issue of
However, we recommend that the Centre review the
whether these criteria should be forward looking
current surcharges and cesses with a view to
or based on past trends. There is no doubt that
reducing their share in the gross tax revenues. We
forward looking indicators are better, as
hope that with the introduction of GST, most of the
devolutions are linked to future performance
cesses and surcharges will be subsumed under the
rather than past performance. As there is no
basic rate of central GST.
certainty that the criteria will remain the same in
8.21 The Commission has taken into account the future, there may not be enough incentive for
overall central transfers to states on revenue states to improve their performance. However, a
account in relation to gross revenue receipts of the Finance Commission can only recommend the
Centre, while recommending the states’ share in net criteria but cannot determine the shares of states
central taxes. For the first time, FC-XI based on future performance, as it is not a
recommended an indicative ceiling on all revenue permanent body. There is no mechanism currently
account transfers, at 37.5 per cent of the Centre’s in place to arrive at the shares of states on the basis
gross revenue receipts. This was raised by FC-XII of year-to-year performance. Besides, the
to 38 per cent. In Chapter 4, we broadly discussed performance indicators become available only
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Chapter 8: Sharing of Union Tax Revenues
after a gap of a few years. Therefore, we do not We have taken into account each one of these
consider it feasible to adopt forward looking criteria and have also examined the suitability of
indicators for tax devolution involving yearly other criteria in our effort to arrive at an appropriate
updating of inter se shares of states. However, we formula for tax devolution. The components of the
have considered such an option in the context of distribution formula recommended by us are
our recommendations for grants. discussed below.
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Thirteenth Finance Commission
FC-X. Area was assigned a weight of 10 per cent by attached to some of our grants. The equity
FC-XII. The Commission assigned a minimum of 2 component in the devolution formula is an enabling
per cent share to those states whose share in total provision that does not, by itself, guarantee
area is less than 2 per cent but did not fix an upper uniformity in public service delivery across states.
ceiling of 10 per cent.
8.31 The income distance criterion used by
8.29 We have assigned a weight of 10 per cent to FC-XII, measured by per capita GSDP, is a proxy
the area criterion as adjusted on the lines of for the distance between states in tax capacity.
FC-XII. States with less than 2 per cent share in total When so proxied, the procedure implicitly applies
area, but assigned a minimum share of 2 per cent, a single average tax-to-GSDP ratio to determine
are Goa, Haryana, Himachal Pradesh, Kerala, fiscal capacity distance between states. This
Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Commission recommends, instead, the use of
Sikkim, Tripura and Uttarakhand. There is no upper separate averages for measuring tax capacity, one
limit on the shares of other states (Annex 8.3). for general category states and another for special
category states. The justification for doing this is
Fiscal Capacity Distance that between the two categories, a single average
applied (implicitly) to GSDP does not accurately
8.30 Population and area have both been adopted
capture the fiscal distance between the two groups.
by this Commission as criteria in the horizontal
This is because overall GSDP does not accurately
devolution formula, with the same weights as those
capture the taxable base for two reasons. The first
used by FC-XII (paras 8.27 and 8.29). These are
is that the sectoral composition of GSDP varies
equity-neutral measures of fiscal need. In a country
across states and the sectors are not uniform in their
like India, where there is a 10:1 ratio between the
taxability. Agriculture, for example, is not effectively
per capita incomes of the highest and lowest income
taxable in states, except where there are plantations.
states (based on average comparable per capita
The second reason is that GSDP estimates presently
GSDP for the years 2004-05 to 2006-07), there is
available are at factor cost and therefore, exclude
an overwhelming case for an equity component in
income such as that accruing in the form of
determination of relative fiscal need and indeed,
remittances. The cross-state average ratio of tax-
this has been recognised by every Finance
to-GSDP is higher for general category states than
Commission from FC-VI. The intent of the equity
for the special category, where this difference
component in the devolution formula is to ensure
encapsulates the combination of factors underlying
that all states have the fiscal potential to provide
the relative fiscal capacity of the two groups. Thus,
comparable levels of public services to their
group-specific averages are applied to the two
residents, at reasonably comparable levels of
categories so as to obtain a closer approximation to
taxation. The equity component is justified, not
the distance in fiscal capacity between states, which
merely to ensure equal treatment of citizens by
is ultimately what is sought to be captured. Ideally,
governments, but also for economic efficiency
tax frontiers specific to each state should be
reasons, so as to minimise fiscally-induced
estimated, but an exercise of this kind was
migration. However, it does not, by itself, ensure
constrained due to lack of the necessary data.
achievement of common standards in quality or
outcomes in public services. For that to happen, it 8.32 The procedure used is, therefore, as follows.
is necessary that the comparable level of tax effort We have first worked out the three-year average per
assumed to hold across states actually prevails in capita GSDP for the individual states based on
each state and that efficiency in delivery is comparable estimates for the years 2004-05 to
reasonably uniform. One of the terms of reference 2006-07 (Annex 8.4). In the next step, the average
of this Commission requires us to look at tax to comparable GSDP ratio has been obtained as
improvement in public service delivery and we do a weighted mean separately for general category
so through the design of the conditionalities and special category states (Annex 8.5). These
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Chapter 8: Sharing of Union Tax Revenues
group-specific averages are then applied to the One of the suggestions made to the Commission was
constituent states in each group so as to obtain the to use a three-dimensional measure of area, with
per capita tax revenue in each state, potentially topographical variation factored in, to better
available at the average tax effort for the group in capture the relative cost disabilities of states and to
which it falls. This is an estimated average. Observed place them all on a uniform platform. However, the
per capita tax revenue will be higher than the necessary data for such an exercise were not
estimate generated here in states with observed tax- available from the Surveyor General of India. In
to-GSDP ratios higher than the group average and states with hilly terrain, the ratio of uninhabited
lower in states with lower ratios. The intent is to area to total area will be higher. To the extent that
estimate per capita fiscal capacity at reasonably the entire area has been used in our devolution
comparable levels of taxation by application of the formula, the provision per square kilometre of
observed group average. inhabited area will be higher. This implicitly covers
8.33 Fiscal distance is obtained for each state by the cost disability of such states, to a limited degree.
the distance of its estimated per capita revenue, by
the procedure described in the previous para, from Fiscal Discipline
the estimated per capita revenue of Haryana, the 8.36 Fiscal discipline as a criterion for tax
second highest in the per capita income ranking after devolution was used by FC-XI and FC-XII to provide
Goa. The distance so computed for all states, barring an incentive to states managing their finances
Haryana and Goa, defines the per capita revenue prudently. Both these Commissions assigned a
entitlement of each state based on fiscal distance. For
weight of 7.5 per cent to this criterion. The index of
Haryana and Goa, a revenue entitlement of Rs. 100
fiscal discipline was arrived at by relating
per capita has been assigned. For Maharashtra, with
improvement in the ratio of own revenue receipts
average per capita GSDP slightly lower than that of
of a state to its total revenue expenditure to average
Haryana, the fiscal distance computed based on the
ratio across all the states. FC-XII had worked out
procedure described in the earlier paragraph worked
the index with the reference period of 2000-01 to
out to be negative. We have assigned it a notional
2002-03 and the base period of 1993-94 to 1995-
revenue entitlement of Rs. 100 per capita, at par with
96. We have retained this criterion and have worked
Haryana and Goa. These per capita entitlements are
out the index of fiscal discipline with 2005-06 to
then multiplied by the respective 1971 population
figures of each state to arrive at the share of each 2007-08 as reference years and 2001-02 to 2003-
state in tax devolution. We have assigned a weight of 04 as the base years (Annex 8.6). The own revenue
47.5 per cent to the fiscal capacity distance criterion. receipts of a state include own tax revenues and
thus, the criterion of fiscal discipline also captures
8.34 The use of average tax-to-GSDP ratios the tax effort of states. We have, therefore, dropped
specific to each category neutralises to an extent the the use of tax effort as a separate criterion. FC-XII
fiscal disadvantage of special category states in assigned a weight of 7.5 per cent each to fiscal
terms of tax capacity.
discipline and tax effort. Thus, the combined weight
8.35 Finally, another principle governing assigned by FC-XII to these two criteria was 15 per
devolution has to be cost disability, so that the cent. There is a strong case to incentivise states
amounts devolved conform to equity-based fiscal following fiscal prudence, particularly in the context
need, modified by differing costs of service delivery. of the need to return to the path of fiscal correction.
Cost disability affects both general and special We have, therefore, assigned a weight of 17.5 per
category states. Within the general category, there cent to fiscal discipline. Under this criterion, if
are many states with spatially dispersed human all states have improved their respective ratios
habitations, which raise the cost of equivalent of own revenue to total revenue expenditure, then
service provision. The weight assigned to area is the states with relatively higher improvement
conventionally designed to take this into account. than the average receive higher transfers.
121
Thirteenth Finance Commission
Similarly, if the ratio has deteriorated in all states, Table 8.2: Inter se Shares of States
then states with lower deterioration than the (per cent)
average receive higher transfers.
States Share
8.37 The criteria for determining the inter se Andhra Pradesh 6.937
shares of states in tax devolution, along with the
Arunachal Pradesh 0.328
weights assigned to them, are summarised in Table
Assam 3.628
8.1. The formula for deriving the inter se shares of
states in tax devolution under each of the criterion Bihar 10.917
122
Chapter 8: Sharing of Union Tax Revenues
Table 8.3: Share of States other than Jammu & Table 8.4: Average Devolution as Percentage
Kashmir in the Service Tax of GSDP
(per cent)
States FC XIII FC XII Difference
States Share (FC XIII-FC XII)
All States 100.000 Notes: 1. Average devolution is determined over the five year period
of each of the Finance Commissions, as projected.
2. Comparable GSDP used for 2005-06 and 2006-07.
3. Comparable GSDP projected over the period 2007-08 to
2014-15 has been used.
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Thirteenth Finance Commission
The inter se share of ith state in the tax sharing For the ith state the share under this criterion (sim=3)
formula, si, is determined as the weighted sum of is derived as
state shares by the four parameters. Thus,
where,
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CHAPTER 9
Revised Roadmap for Fiscal
Consolidation
9.1 Para 8A of the Terms of Reference (ToR) out. Table 9.1 provides a picture of the combined
requires the Commission to undertake the following liabilities and combined fiscal deficit of the Central
task: ‘Having regard to the need to bring the liabilities and State Governments from 2004-05 to 2008-09
of the Central Government on account of oil, food (BE). Combined liabilities1 have fallen consistently
and fertilizer bonds into the fiscal accounting and from 91.7 per cent of Gross Domestic Product (GDP)
the impact of various other obligations of the Central in 2004-05 to 81.9 per cent by the budget estimates
Government on the deficit targets, the Commission for 2008-09. The combined fiscal deficit also fell
may review the roadmap for fiscal adjustment and from 7.3 per cent in 2004-05 to 5.0 per cent in 2008-
suggest a suitably revised roadmap with a view to 09 (BE). Subsequent to the budget for 2008-09, there
maintaining the gains of fiscal consolidation through was a global slowdown which continued in the year
2010 to 2015.’ In addition, the Commission has also 2009-10.
been asked, vide Para 5 of the ToR, to ‘review the Table 9.1: Aggregate Position of Centre and
state of the finances of the Union and the States, States
keeping in view, in particular, the operation of the (per cent of GDP)
States’ Debt Consolidation and Relief Facility 2004-05 2005-06 2006-07 2007-08 2008-09
(RE) (BE)
(DCRF) 2005-10 introduced by the Central
Government on the basis of the recommendations RD 3.6 2.6 1.2 0.6 0.4
FD 7.3 6.6 5.3 5.3 5.0
of the Twelfth Finance Commission and suggest Debt 91.7 91.2 88.2 86.5 81.9
measures for maintaining a stable and sustainable
Source: Indian Public Finance Statistics 2008-09
fiscal environment consistent with equitable growth.’
This chapter addresses these ToR. 9.3 The macro-fiscal correction prescribed by
the Twelfth Finance Commission targeted the
The Overall Macro-fiscal Position:
combined fiscal deficit of the Centre and states, in
Assessment and Targets
line with the assumed availability of household
9.2 The fiscal roadmap for 2010-15 needs to take savings at 10 per cent of GDP and an acceptable level
account of the combined macro-fiscal position of the for the current account deficit at 1.5 per cent of GDP.
Central and State Governments and to set macro- After allowing for absorption by the private sector
fiscal targets with reference to the overall position. at 4 per cent of GDP and by non-departmental
The two key indicators in this context are the public sector enterprises at 1.5 per cent of GDP, this
combined fiscal deficit and the combined debt to yielded a feasible, sustainable, combined fiscal
GDP ratio. The latter is not a simple aggregation of deficit of 6 per cent of GDP. However, it should be
the outstanding liabilities of the Central and State noted that this fiscal deficit was the target for the
Governments. Inter-governmental transactions such last year of FC-XII projections (2009-10) and that
as loans to states from the Centre need to be netted the combined deficit figures projected for the years
1
These liabilities include external debt at book value.
125
Thirteenth Finance Commission
leading up to the final year were higher. A constant government to maintain a medium term fiscal strategy
fiscal deficit of 6 per cent with nominal GDP growth that can be monitored over a multi-year period.
rate of 12 per cent for the economy, as assumed in
9.7 It is clear that in spite of improved
the FC-XII projection exercise, would stabilise debt
performance in the first three years of the FC-XII
in the long term at 56 per cent. However, the
award period, the Centre will not be able to achieve
economy approaches such a long term resting point,
the FRBM targets by the end of 2009-10. Looking
asymptotically, only at infinity. After factoring in
ahead, the government has not set a firm time limit
the fiscal deficit progression assumed for the
for fiscal performance to be brought back on its
projection period of FC-XII, to the final targeted
FRBM envisaged path. This, then, becomes a central
fiscal deficit of 6 per cent of GDP, their targeted debt
task for this Commission. In addition, the impact
for 2009-10 worked out to 75 per cent of GDP.
of the recent counter-recessionary measures on the
9.4 Despite the commendable fiscal correction fiscal stance indicate two important priorities for
achieved by the Centre and states, as described in the present Commission: (i) to ensure that the fiscal
Chapter 4, the closing debt to GDP ratio for sustainability of the Centre is protected and
2009-10 is estimated to reach 82 per cent, well improved through measures to reduce the debt
above the FC-XII target of 75 per cent, owing largely to GDP ratio, which rose as a consequence of
to the adverse macroeconomic circumstances in not meeting the FRBM targets and (ii) to be mindful
2008-09. Given the imperative of creating an of the need for the FRBM Act targets
environment favourable to private investment in the to be adjusted when exogenous unanticipated
Indian economy, it is necessary that the ratio of shocks occur.
consolidated liabilities to GDP be reduced, not
9.8 The Commission has considered the targets
merely below the level presently estimated for the
prescribed in the FRBMA and has taken into
close of 2009-10, but also that targeted by the
account the views of the Central Government and
previous Finance Commission.
Reserve Bank of India (RBI) on the value and utility
9.5 In our view, it should be possible to reduce of these targets. Our discussions and a perusal of
the combined debt of Centre and states to around their memoranda reinforce our belief that a target-
68 per cent of GDP by 2014-15. This target has been based framework needs to be maintained for the
arrived at as the feasible and desirable correction, award period of this Commission.
based on our projections of the medium term
9.9 The enactment of Fiscal Responsibility
macroeconomic situation during the award period
Legislation (FRL) in 26 states has resulted in
and our assessment of the resource position of the
significant fiscal correction. In aggregate, these
Centre and states over this horizon. Accordingly,
states have reached their expenditure and debt
the fiscal deficit targets prescribed for the Centre
targets ahead of schedule. Revenue buoyancy, both
and states are such as to secure the targeted
due to improved own tax revenues of the states and
correction in the combined debt to GDP ratio to
due to the derived benefit of high central tax
around 68 per cent. In the sections that follow, we
buoyancies (through share in central taxes) has
obtain the individual components of the Centre and
mainly been responsible for the fiscal correction.
states within this overall target.
Another encouraging feature is that, in the
9.6 The Fiscal Responsibility and Budget aggregate, the states have been able to reduce their
Management Act (FRBMA), 2003 is, in essence, a debt to Gross State Domestic Product (GSDP) ratio
target-based framework to ensure that government to less than 30 per cent. An equally, noteworthy
finances are managed with a view to achieving outcome of the implementation of FRL has been the
equitable, long term macroeconomic stability welcome exit of all general category and three
consistent with attainment of the medium term special category states from a post devolution
growth target of the Indian economy. It requires the non-plan revenue deficit. However, there is wide
126
Chapter 9: Revised Roadmap for Fiscal Consolidation
variation in performance among the states. The 9.12 With regard to debt relief, the states have
Commission’s objectives are, therefore, to maintain asserted that interest rates on loans from the
the virtuous improvements in state finances, to National Small Savings Fund (NSSF) are high and
protect state finances against exogenous shocks to sought an intervention on this front. While some
the extent feasible and to incentivise those states states have sought reduction of interest rates to 9.5
that continue to face fiscal stress towards per cent on the pre-2003-04 loans, some have
undertaking urgent fiscal correction. sought its inclusion in the Debt Consolidation and
Relief Facility (DCRF) at an interest rate of 7.5 per
Stakeholders’ Views on Existing cent. Some states have sought a reduction in the
FRBM Framework difference between the interest rates on open
9.10 The states, in their individual memoranda, market loans and NSSF loans. It has also been
have raised various issues regarding the roadmap for suggested that the interest rate should not be more
fiscal consolidation and debt relief. On the issue of than 50 basis points higher than the average cost of
elimination of revenue deficit, the states have agreed funds. Some states have suggested that it should be
with the approach of FC-XII and accept that, as a linked to the Central Government Securities (G-Sec)
prudent fiscal policy, borrowings should not be used rate to eliminate the anomalies in interest rates for
for government consumption expenditure. They have all time. The joint memorandum of the states urges
suggested that this ‘golden rule’ should be made an us to take into account the total loan burden of the
integral part of the roadmap for 2010-15. On the issue states, including NSSF loans and loans of ministries
of fiscal transparency the states have criticised the other than Finance in recommending effective debt
practice of off-budget borrowings. Some states have relief measures.
represented that this should not be used as an excuse
9.13 On debt management, states have protested
for relaxation in the fiscal targets for the Centre. In
that they are saddled with high cost debt. It has been
their collective memorandum the states have pointed
out that all grants to local bodies and to other aided pointed out that while states take 80 per cent of the
institutions are classified as revenue expenditure. high-cost NSSF loans, the Centre takes 80 per cent
Hence, a mechanical application of the revenue of the aggregate open market loans, which are
deficit conditionality detracts from the efforts of State low-cost. Some states have argued that the ratio of
Governments to decentralise development the shares of the Centre and states should be similar
expenditure. for all sources of borrowings. It has also been
pointed out that the repayment obligation is
9.11 On the subject of fiscal targets, the states expected to be higher than ever before during the
have suggested that targets should not be
award period of FC-XIII due to the loans taken for
mechanically set, but should depend on the states’
debt swap and increased market borrowings due to
capacity to service debt. Some states have
reduction in NSSF loans. It has been suggested that
suggested that the targets should allow them to
this should be taken into account while
take up their development spending. A few states
recommending debt relief schemes and drawing up
have pointed out that the path to fiscal correction
the revised fiscal consolidation path.
should allow countercyclicality and in years of high
revenues, restrict excessive spending. They have 9.14 On DCRF, some states have argued that the
also suggested the setting up of a National Fiscal size of relief recommended was inadequate and
Stabilisation Fund. It has further been represented have asked for inclusion of NSSF loans under the
that GSDP is not a very reliable denominator for DCRF scheme. Some states have suggested that the
fixing the targets and the roadmap. Instead, they benefit of the debt waiver was not concomitant with
suggest that targets be set for both interest its extremely stringent conditionalities. We have
payments and debt stock in terms of total revenue received requests for continuation of the scheme
receipts. during our award period.
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Thirteenth Finance Commission
9.15 The Central Government, in its argued that capital expenditure involves a ‘sacrifice’
memorandum, has stated that the Centre has been of present consumption by the present generation
moving towards fiscal consolidation. It has argued and thus, the future generations have an obligation
that debt relief schemes tend to give perverse to repay this sacrifice. The Commission further
incentives to those who have contracted high debts points out that the current framework provides a
in the past and thus, need to be carefully designed. straitjacketed approach to the fiscal roadmap and
does not prescribe any cyclically adjusted budget
9.16 In its comments, the Reserve Bank of India has
balance to build in counter cyclicality in government
maintained that the design of the post-FRBM fiscal
spending. It has also pointed out that the conformity
architecture should ensure long term sustainability,
of the current classification to the distinction
inter-generational equity and ability to stabilise the between expenditure on revenue account and other
fluctuations in employment and output in the expenditure referred to in the Constitution should
economy. Deficits and debt should be contained at be examined. With regard to the fiscal deficit, the
tolerable levels so as not to hinder monetary policy Planning Commission has suggested that the
objectives. RBI has noted that due to the economic approach should be to set a trajectory for the debt
slowdown, the FRBM rules have been relaxed for fiscal stock instead of fixing uniform targets for fiscal
years 2008-09 and 2009-10. Therefore, post-FRBM deficit. It has also suggested that one aspect of debt
fiscal architecture should exclude these two sustainability is liquidity of government, which can
exceptional years and begin when normalcy returns. be assessed as a ratio of debt servicing requirement
RBI is of the opinion that there is need to maintain a to the revenues of the government. Putting a cap
balanced revenue account with a ceiling on deficits on this ratio can be an additional measure in the
and debt. Hence, there is need for a revenue deficit direction of ensuring debt sustainability.
target along with a cap on the fiscal deficit. According
to an exercise carried out by RBI, the absorption Central Government: Roadmap
capacity of the economy for the combined market and Recommendations
borrowings of the Centre and the states is in the range
of 5 to 6 per cent of GDP during the period 2010-11 to Fiscal Targets
2014-15. Hence, the combined fiscal deficit of 5 to 6 9.18 A long term and permanent target for the
per cent may be apportioned equally between the Central Government should be to maintain, at the
Centre and the states. RBI’s opinion is that off-budget minimum, a zero revenue deficit. In essence, this
liabilities must be captured in the calculation of debt. target is based on the ‘golden rule’ which is simply
However, in the case of NSSF, the part of the fund that, in the absence of economic emergencies no
utilised by State Governments is to be excluded before economic agent should borrow to finance current
setting up any debt targets for the Centre. consumption. Borrowing should be undertaken for
9.17 The Planning Commission, in its comments, investment purposes only. In the context of the
has pointed out that the entire practice of meeting public sector, this requires the government not to
the subsidy requirements through off-budget use national savings to finance consumption. Thus,
borrowings and not taking it into account in the all items of consumption expenditure need to
revenue and fiscal deficits is a clear violation of the be financed from current receipts, a practice
definitions under the FRBM Act. One of the which is widely implemented in most countries
important points raised by the Planning that have successfully addressed the issue of
fiscal responsibility.
Commission is that the recommendation of
elimination of the revenue deficit should be 9.19 While some allowances may be made for
reviewed in the light of the blurring line between revenue deficits during recessionary phases, the
revenue and capital spending of governments, at medium-term fiscal framework must plan for all
both the central as well as the state level. It has current expenditures to be financed entirely out of
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current revenues. This is an essential requirement workforce as well as through improvement on the
for prudent long term fiscal policy. It is salutary to human development front. It has been argued that
note the importance that has been attached to public expenditure on teachers’ or nurses’ salaries
maintaining progress towards a zero revenue deficit be treated as capital expenditure, given that they
in the speeches of all the Finance Ministers since yield all kinds of returns in the future.
the passing of the FRBM Act, even in a situation
9.22 It has been further argued that since
where a high growth rate and a comfortable balance
development on account of health and education
of payments position afforded them room to
gets embodied in the beneficiaries once health
manoeuvre and where, unlike in the 1990s, the
standards improve or educational standards are
deficit situation posed no immediate threat to fiscal
stepped up, the expenditure incurred on these is
solvency. Thus, we are of the view that there is a
more akin to investment and hence, it would be fair
general consensus on maintenance of the golden
to treat it as capital expenditure. Moreover, in the
rule and on setting the associated revenue deficit
absence of nurses, doctors and teachers, the capital
target at zero, with surpluses on the revenue account
expenditure incurred on hospital buildings or
as a desirable goal.
school buildings is of little use.
9.20 We recognise that the revenue deficit is but
9.23 We have considered the above argument
an approximation for the current deficit in India. It
carefully. However, we are of the view that it is not
includes spending that is not consumption and does
valid for the following reasons.
not include spending of a consumption nature. We
have, in a subsequent section, recommended an i) The services provided by teachers and
urgent review of this issue. However, we do not feel health workers are ‘exhausted’ or fully
that this shortcoming is of such magnitude as to delivered when their job is done (teaching
render the revenue deficit inadequate as a measure children/ treating patients). A teacher paid
of borrowing for government consumption an annual salary to educate a class of
spending. The definition of consumption spending children has provided his or her human
is fairly clear and is fully captured in the economic resource inputs when the payment is made
classification of government expenditure. While across the academic year. The same is true
definitional refinements are certainly important of medicines, etc.–they are fully consumed
and desirable, they do not present a barrier to in the process of providing the service
setting revenue deficit targets. within the financial year in which they are
purchased (less any positive changes in
9.21 We also feel that it is important to strictly
inventories, which are carried forward as
follow the accepted definition of what items are
additions to capital stock). The same is not
treated as current (or recurrent) expenditures in the
true of hospital buildings and school
economic classification of public expenditures. It
buildings (less depreciation, which is
is necessary to make this point because we have, in
treated as current expenditure).
the course of our consultations and perusal of
international literature, noted that there is an ii) The services do not, on their own, create
argument that outputs ‘constructed by the public future human capital. This is created
sector providing longer-term benefits to society over through a combination of capital inputs
time’ should be treated as capital expenditures. For (like hospitals) to which we apply current
example, the National Rural Health Mission inputs (like doctors and nurses) on a
(NRHM) uses labour in the form of doctors and continuous and recurrent basis–which is
nurses and other factors such as hospitals and why current expenditures are sometimes
buildings, to produce health services. The outcome– referred to as ‘recurrent’ expenditures.
improved health—yields returns in the future Thus, a doctor needs to be paid to treat
through higher productivity from a healthier patients on a periodic basis for the time that
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Thirteenth Finance Commission
that s/he devotes to such treatment. The 9.28 Since the National Small Savings Fund is
same is not true of hospital buildings. maintained in the public account of the Central
Government, the total amount invested by the
9.24 The existing classification of revenue and
Fund in special securities of the Central and State
capital expenditure cannot be disturbed in an
Governments is accounted under ‘other liabilities’
ad hoc manner. It has to be the result of a
within the ‘total outstanding liabilities’ of the
comprehensive study. Any disturbance of this
Central Government. However, the amount
classification has wide-ranging implications for the
invested in State Government securities are loans
finances of both the Union and the states. In view
to the states from the Fund, primarily financing
of this, it is not possible to accept the suggestion
the fiscal deficit of the State Governments. It is
mentioned earlier about reclassifying some portions
shown within the outstanding liabilities of the
of revenue expenditure as capital expenditure. It
Central Government merely for accounting
would, thus, be appropriate to continue with the
purposes, but should be treated as outstanding
existing classification of expenditure as ‘revenue’
debt of the states alone. While arriving at the
or ‘capital’.
outstanding debt of the Central Government, this
9.25 There are also other related issues, such as amount has been deducted from the reported debt
classification of grants. At present all grants to other stock. Finally, an adjustment has been made to
tiers of government are classified as revenue account for external debt at the current exchange
expenditures, irrespective of purpose. Even when a rate This is presently accounted at book value in
grant is provided for the explicit purpose of creating ‘outstanding debt’ as reported in the Union
a capital asset, it is classified as revenue expenditure Budget. The adjustments made to arrive at the
because the capital asset so created is owned by the outstanding debt at the end of 2009-10 are as
grant recipient and not the grant provider. No shown in Table 9.2.
provision presently exists to define a grant for
9.29 In line with the above adjustments, Central
creation of assets as a capital grant. This issue is
Government debt is projected at 54.2 per cent of
taken up further in Chapter 13.
Table 9.2: Adjusted Debt Stock of Central
9.26 We now turn to the fiscal deficit target for Government
2014-15 and the roadmap for adjustment of the
Component As on 31
fiscal deficit across the award period. The March 2010
terminal year fiscal deficit target needs to be (Rs. crore)
consistent with reduction in the debt to GDP ratio 1. Outstanding Liabilities (Budget
to a desired level, concomitantly with Documents 2009-10) 3495152
maintenance of a desired level of capital 2. Investment in Special State Government
expenditure across the award period. Hence, it is Securities 463337
necessary to first specify the debt to GDP ratio 3. Outstanding Liabilities of GoI Net of
desired in the terminal year Amounts Invested in State Securities [1-2] 3031815
4. Off-Budget Liabilities Of which 201236
9.27 For the purpose of our analysis we have
(a) Securities Issued to Oil Companies 157536
adjusted the outstanding debt figures of the Central
(b) Securities Issued to FCI 16200
Government for the year 2009-10. We have netted
(c) Securities Issued to Fertiliser Companies 27500
out certain liabilities that have been double counted, 5. Adjustment on Account of Valuation of
in particular the NSSF liabilities of State External Debt on Current Exchange Rate 142441
Governments. We have also adopted the Ministry
6. Adjusted Debt [3+5] 3174256
of Finance revaluation of external debt at current
(as per cent of GDP) (54.2%)
exchange rates.
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GDP at the conclusion of 2009-10. Taking into be high, the target for capital expenditure is held
account the expected reduction in fuel and fertiliser at the same percentage of GDP as budgeted in
prices, along with the expected return to the trend 2009-10. As per the budget estimates for 2009-
growth rate of over 13 per cent from 2011-12, in 10, the fiscal deficit of 6.8 per cent, in conjunction
conjunction with other reforms including reduction with the budgeted revenue deficit of 4.8 per cent
of subsidies along a prescribed path, we project a and non-debt capital receipts at 0.1 per cent of
feasible level for outstanding liabilities of the GDP, yields a capital expenditure of 2.1 per cent
Centre at 45 per cent of GDP by 2014-15, while at of GDP. As indicated in Para 6.47, non-debt
the same time maintaining adequate resources for capital receipts have been projected to increase
public investment.
from 0.5 per cent of GDP in 2010-11 to 1 per cent
9.30 The first step in constructing the fiscal in 2014-15. Capital expenditure has been
correction trajectory was to prescribe the revenue increased to 3 per cent of GDP in the first and 3.1
deficit path, starting with the projections of per cent in the second year of the projection
revenue receipts and expenditures of the Centre horizon. In view of the projected reduction in
provided to us by the Ministry of Finance for revenue deficit, the permissible capital
2010-15 and applying normative corrections for expenditure has been allowed to increase to 3.8
some elements of revenue expenditure, such as per cent, 3.9 per cent and 4.5 per cent in the third,
explicit subsidies (refer to Chapter 6). fourth and fifth year, respectively of our award
9.31 The Commission recognises that making period (see Table 9.3). Higher capital expenditure
progress towards the golden rule of zero revenue than that projected by us will be possible in all
deficit during the award period has to take account the years of the projection period if there are
of the sharp increase in the revenue deficit to GDP increased receipts from disinvestment.
ratio expected in 2009-10. Our analysis led us to
9.33 Currently, with regard to government
conclude that it would be unrealistic to expect that
guarantees, the FRBM rules prescribe a ceiling of
the revenue deficit to GDP ratio would be zero
across all years of the award period. Accordingly, 0.5 per cent of GDP for the annual flow, rather than
based on our normative assessment of central for the stock. We recommend that this be converted
revenues and expenditure, the ratio is projected to to a ceiling of 5 per cent of GDP for the stock of
decline from 4.8 per cent of GDP as budgeted for outstanding guarantees at the end of every year. In
2009-10, to a revenue surplus of 0.5 per cent of GDP 2007-08 government guarantees amounted to 2.2
by 2014-15. These projections imply, on average, a per cent of GDP, which was within the above limit.
revenue deficit to GDP ratio of 1.25 per cent across We elaborate on the guarantees covered by this rule
the award period. Details of the underlying GDP in a later section.
growth rates, other parameters and adjustments are
in annexes 6.1 and 6.3. Reforms to FRBM Legislation
9.32 In the initial years of our projection 9.34 The Commission undertook extensive
horizon, when the revenue deficit is expected to consultations on the content of FRBM legislation
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Thirteenth Finance Commission
and the issues raised during its implementation over the benefits of fiscal consolidation are more likely
the last five years. Based on these consultations, the to accrue when policy decisions are made with a
issues raised can be grouped into three categories: view to medium term impact and where the medium
term horizon allows governments to be flexible
i) Making the FRBM process more
when exogenous or unanticipated events occur.
transparent and comprehensive.
9.38 Thus, it is recommended that the Central
ii) Ensuring that the FRBM process takes
Government revises the existing medium term
account of changes in the values of
fiscal policy statement with a more detailed
parameters exogenous to government action
Medium Term Fiscal Plan (MTFP) which contains
and is sensitive to exogenous shocks.
three-year-forward estimates of revenues and
iii) Improving monitoring and compliance. expenditures, with detailed breakup of major items
9.35 Before detailing the recommendations it is that form a part of the revenue and expenditure,
together with a narrative explanation of how these
important to recognise that the implementation of
estimates have been generated. In other words, the
Fiscal Responsibility Legislation cannot be fully
estimates of revenues and expenditures should be
effective when the time frame for policy making is
arrived at as the sum of their parts and should be
largely annual in nature. For the FRBM legislation
in conformity with the broad roadmap for fiscal
to work more effectively, with the flexibility required
parameters set out under the Act. Thereafter, the
to adapt to exogenous shocks and changes in
government could increase the time horizon of the
parameter values (like oil prices), what is required
MTFP by one year in each subsequent year and
is an annually adjusted, medium term fiscal
provide fresh estimates for the other years. The
framework, that sets medium term targets
estimates of the first year would be converted into
consistent with achievement of FRBM and provides
budget estimates, along with a narrative
evidence-based rationale for deviations in actual
explanation of such revisions. In effect, this would
out-turns from these medium term targets.
mean that the Central Government would provide
9.36 We think that the budgeting process in India a fiscal roadmap for three years into the future.
needs significant reform to enhance the medium term This would ensure tighter integration of the MTFP
dimensions to fiscal policy design and that far more into the budget and make the MTFP more a
attention needs to be devoted to this issue than has statement of commitment rather than merely one
historically been the case. A beginning has, indeed, of intent. These changes, when implemented, will
been made by the annual presentation of a medium also facilitate our more effective participation in
term fiscal policy statement. However, this document the G-20 Forum’s mutual assessment mechanism.
is less than adequate to assess the fiscal impact of
9.39 We are of the view that this is the most
major policy decisions of the government and has a
significant reform that India needs to make in the
tenuous link with the annual budget which continues
context of effective design and implementation of
to be the major policy document guiding the design
fiscal responsibility legislation. Such legislation can
of the Central Government’s public finances.
be effective and its credibility enhanced when there
9.37 The transition from an annual statement of is a medium term plan that is used by the
revenue and spending (such as that embodied in government as an operational policy document. In
the annual budget) to a rolling medium term fiscal the following paragraphs we recommend a number
framework (of which the annual budget is but one of steps that will need to be taken for progress in
part) has been an important reform in countries this direction. We have tried to ensure that these
where target-based fiscal policy has proved to be recommendations can be implemented within the
effective and durable. Conversely, target-based existing Constitutional framework and only require
fiscal policy has been gestural in countries where incremental changes that build on the existing
such a transition has not been made. This is because institutional processes and procedures.
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Chapter 9: Revised Roadmap for Fiscal Consolidation
Making the FRBM Process More systematised in all future budgets and the basis for
Transparent and Comprehensive calculation of these expenditures be made explicit.
9.40 The economic and functional classification 9.43 We recommend that the Central
of the budget is an important tool–this is what Government should initiate measures to report the
makes a budget or a MTFP an instrument of policy compliance costs of major tax proposals in the
as distinct from an instrument of accounting and MTFP. We recognise that this move would require
legislative compliance, which is the principal sufficient preparatory action and hence,
function of a line item budget. This is currently recommend that this should be done from the
produced with a considerable time lag. We 2013-14 Budget.
recommend that the government prepare to present
9.44 In its memorandum to the Commission, the
a detailed economic and functional classification of
Ministry of Finance has pointed out: ‘... a plan
the expenditure budget as part of the MTFP. The
expenditure proposal without reference to the
budget preparation process should be modified to
ability of the state/project to finance its
enable this, so that expenditure proposals are
maintenance by user charges or by a specific future
concurrently presented in line item format as well
charge on the revenues of the state is essentially
as in the economic and functional format. This will
faulty design/planning process. There is a need to
enhance the operational value of the budgetary
correct these upfront and to limit the provision of
process and enable progress in assessing the quality
maintenance grants by the Commission, to the real
of public expenditure by relating fiscal proposals
unmet needs.’ This is an important proposition
to their economic and developmental impact. We
requiring fiscal reform and recognises that there is
recommend that this process commence from the
a mismatch between capital expenditure
2011-12 fiscal year with respect to the economic
programmes and maintenance allocations for such
classification, as the information necessary for this
programmes. The consequence has been that
purpose is already being collected in the budget
Finance Commissions have sought to redress this
exercise, with the full economic and functional
imbalance through provision of maintenance
classification to be presented as soon as practicable.
grants.
9.41 We have noted that there is considerable
9.45 We recommend that all capital expenditure
difficulty in identifying the volume and incidence of
proposals for inclusion in the Government of India
central transfers to states. We recommend that all
Budget are accompanied by a statement of the
central transfers to states be set out in an
Revenue Consequences of Capital Expenditure
independent statement including, in the case of
(RCCE) for the lifetime of the proposed projects.
central transfers under budget head 3601, a detailed
RCCE statements should be annually modified to
breakup into the constituent flows, such as Finance
take into account price and other changes. The
Commission grants (separate components), other
RCCE statements should be used to calculate
non-plan grants, normal central assistance,
revenue expenditure requirements in the years
additional central assistance and special central
covered by the MTFP such that revenue expenditure
assistance. The Ministry of Finance should produce
projections are consistent with the RCCE
this statement with retrospective effect once the
statements. This activity will need to be coordinated
format is available, in order to enable inter-temporal
with the Planning Commission, which will also need
analysis that would facilitate the work of future
to institute a process of producing RCCE statements
Finance Commissions.
for plan expenditure proposals, in the preparation
9.42 The Central Government has commenced of Annual Plans and for the Twelfth Five Year Plan.
reporting tax expenditures in a separate statement RCCE statements should begin to be provided from
from the 2006-07 Budget, which is a laudable and the 2013-14 Budget for all projects requiring Public
useful initiative. We recommend that this be Investment Board (PIB) approval.
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Thirteenth Finance Commission
9.46 Government policies are, by nature, forward contain a short report that comprehensively
looking. Many important development initiatives details and quantifies the financial obligations of
such as the National Rural Employment Guarantee the public sector in the PPP arrangement. These
Scheme (NREGS) and measures to implement should be collated for all central undertakings.
the Right of Children to Free and Compulsry The collation should form the basis of a statement
Education (RTE) Act have expenditure consequences in the MTFP, detailing the aggregate obligations
for future years. Hence, we recommend that new of the Government of India and the risks involved.
policy initiatives that are known to involve future Simultaneously, GoI should initiate a review of
expenditure commitments should be reflected in the the provisions regarding termination payments
MTFP. In addition, the MTFP should also provide the in existing PPP projects and report these in the
projections for transfers to states, either in the form
MTFP prepared from the fiscal year 2011-12
of plan assistance or under Centrally Sponsored
onwards.
Schemes (CSS). This, too, should be done from the
2013-14 Budget. 9.50 In a market economy, the government
maintains a portfolio of physical and financial
9.47 It is important that contingent liabilities be
capital assets in order to secure its geopolitical and
reported fully and that adequate provisioning be
strategic priorities, provide national and global
made for such liabilities. We have recommended
public goods and address market failures that
modification of the fiscal rule that limits
government guarantees. The public sector as a impact affordable access to merit goods for the
whole is vastly enhancing its use of the Public poor and disadvantaged sections of society.
Private Partnership (PPP) mode for project Historically, India’s strategic priorities have
financing. This frees valuable fiscal space for the included diversification of the production base,
provision of public goods in areas where such fostering of infant industries and provision of key
finance is unlikely to be forthcoming. infrastructure assets and commodities that the
domestic private sector was not able to provide due
9.48 We welcome this trend of private participation
to various reasons during the early stages of
in the public sector. We also recognise that PPPs create
national economic development. With economic
explicit and implicit obligations on the part of the
liberalisation, rapid economic growth,
public entity that is party to them so that, in the final
diversification of the production base, growth of
instance, they become contingent liabilities of the
captial markets and creation of the knowledge
Government of India. The fiscal fallout of such
partnerships could reflect on the health of the economy, there has been a transformation of the
aggregate balance sheet of the public sector and may potential and capacity of the Indian private sector
create demands for enhanced budgetary support to to deliver goods and services in a broad range of
the public sector entities contracting such liabilities. areas. Infant industries have become global
Explicit contingent liabilities, which may be in the form players. At the same time, new strategic
of stipulated annuity payments over a multi-year imperatives like environmental sustainability,
horizon, should be spelt out. Implicit contingent human development, rapid urbanisation and
liabilities in this context are obligations to compensate expansion of a knowledge society to capitalise on
the private sector partners for contingencies such as the demographic dividend have emerged, as
changes in specifications, breach of obligations and/ discussed in Chapter 3. A reordering of the
or early contract termination for force majeure. government’s public investment priorities is,
These are relatively difficult to quantify. We think therefore, both necessary and desirable.
that the FRBM Act should stipulate these contingent
9.51 To this end, disinvestment and
liabilities.
privatisation serve as avenues for the government
9.49 We, therefore, recommend that the to increase fiscal space to meet these emerging
documentation associated with each PPP should strategic challenges. Disinvestment allows the
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Chapter 9: Revised Roadmap for Fiscal Consolidation
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Thirteenth Finance Commission
2009-10 are Rs. 10,000 crore and Rs. 15,000 crore deficit target. Shocks addressed through expanding
respectively. public investment would impact the debt-to-GDP
ratio and, therefore, the fiscal deficit target.
9.59 The fiscal correction path of the economy
was thus reversed. The revenue deficit increased 9.63 Finally, macroeconomic stabilisation and
from 1.11 per cent of GDP in 2007-08, to 4.53 per counter-recessionary actions are the primary
cent in 2008-09 (RE). In 2009-10 (BE) it is responsibility of the Central Government. It is true
estimated to be even higher at 4.83 per cent. The that the implementation of counter-recessionary
fiscal deficit also shot up from 2.69 per cent in measures has, to some extent, been customised,
2007-08 to 6.14 per cent in 2008-09 (RE) and is requiring measures which the State Governments are
projected at 6.85 per cent in 2009-10 (BE). best placed to implement. However, the associated
9.60 An important lesson from the fiscal costs should be borne nationally and hence, be
implementation of the FRBMA during 2005-10 is, financed by the Centre. This is because the desired
therefore, the need to allow the fiscal system to outcomes–macroeconomic stability and
adapt to exogenous shocks and/or changes in maintenance of the highest possible growth rate–are
exogenous parameter values. This is a core objective targets that need to be secured nationally. Hence,
of the stabilisation function of public finance which we recommend that rather than raising the
no roadmap can afford to ignore. We, therefore, borrowing limits for states when such shocks occur,
recommend three changes in the design of the the Central Government should assume the entire
existing fiscal responsibility legislation to address additional resource mobilisation responsibility and
this challenge. pass on the resources so mobilised to the states in
the form of increased devolution. The inter se
9.61 First, we recommend that the MTFP make
distribution of these resources should be determined
explicit the values of the parameters underlying
in accordance with the horizontal devolution formula
expenditure and revenue projections and the band
recommended by the Finance Commission. This
within which these parameters can vary while
formula would serve as the most pertinent estimate
remaining consistent with FRBMA targets. This will
of the differential requirements of the states, having
enable the government to make an evidence-based
been designed specifically with reference to fiscal
case for relaxation of these targets, should such
capacity and fiscal need. Such a policy would also
circumstances arise. Recent history indicates that
some of the important parameters that are likely to maintain the integrity and improve the expenditure
impact the path of FRBM achievement are the prices predictability of the state budgets as well as the
of key commodities (like oil), the exchange rate and medium term fiscal plans, with only the Centre
the interest rate. needing to initiate ‘pauses’ or seek postponements in
achievement of its FRBM targets.
9.62 Second, we recommend that the FRBMA
specify the nature of shocks that would require a 9.64 Other than exogenous shocks and parametric
relaxation of FRBM targets. These would include changes, there are also policy processes which create
agro-climatic events of a national (rather than macroeconomic shocks and distortions, but are
regional or state-specific) dimension, global within the control of the Central Government. Pay
recessions impacting the country’s exports and Commission recommendations are an important
shocks caused by domestic or external events like example of this. In our discussions with State
asset price bubbles or systemic crises in important Governments a significant portion of the memoranda
sectors like the financial markets. It is clear that presented and the discussions on the future fiscal
these shocks would affect some targets more than roadmap centred around the impact of this award
others. Thus, shocks requiring a boost to aggregate on state finances. For the Centre, arrears alone
demand, or sharp increases in global oil prices amounted to Rs. 28,160 crore on a salary base of
would require a temporary relaxation of the revenue Rs. 44,360 crore. While many reforms can and
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Chapter 9: Revised Roadmap for Fiscal Consolidation
should be, contemplated to end this self-inflicted matters dealt with by the Council in accordance with
distortion, one action that could be taken current Constitutional provisions. As the size and
immediately is that of making the pay award complexity of the Indian economy expands, it is
commence from the date on which the imperative that such an institution be developed to
recommendations of future Pay Commissions are assist the government in addressing its fiscal tasks
accepted by the government. In effect, this would do in a professional, transparent and effective manner.
away with the need for arrears. Since State Fiscal Council like institutional arrangments exist
Governments’ awards typically follow those of the in many countries such as Brazil, Japan, Korea,
Central Government, this would allow states to time Mexico, Sweden and these have been found to add
their awards such that the need for arrears does not considerable value to the integrity and effectiveness
arise. In our view, if Finance Commissions are of medium term fiscal policy and design.
able to present their inter-governmental
recommendations without any need for retrospective State Finances: Roadmap
fiscal transactions, then the same should be possible and Recommendations
in the case of Pay Commissions as well. 9.67 In Para 9.5 we specified the medium term
combined debt to GDP ratio target for 2014-15 at
Monitoring and Compliance 68 per cent. With the target Central Government
9.65 Previous Finance Commissions have sought debt at 45 per cent of GDP in 2014-15, this implies
to incentivise State Governments to undertake fiscal a target debt to GDP ratio of 25 per cent for all states
reforms by providing conditionality-linked in the same year (the state and central ratios do not
incentives such as debt relief. These incentives have add up to the combined ratio because central loans
been remarkably successful in delivering improved to the states have to be netted out).
fiscal health in state finances. However, many state 9.68 This is a feasible target from the perspective
FRBM legislations also provided for an independent of the states. In the 2005-09 period, the states have
review of implementation of the respective undertaken considerable fiscal correction and their
FRBMAs. These reviews were critical in improving aggregate debt to GDP ratio is not expected to be
the credibility and transparency of actions taken by higher than 30 per cent in 2009-10. Given that the
the State Governments for implementation of fiscal ratio was 27 per cent in 2008-09, we consider any
responsibility legislation. In our opinion, they have increase from this ratio to be temporary, in the sense
been a major contributor to the success of fiscal that it reflects the allowance for debt financed
reform initiatives at the state level. We recommend counter-recessionary expenditures by State
that the Centre institute a similar process of Governments. Recognising the need for such
independent review and monitoring of the expenditures, the Government of India has relaxed
implementation of its own FRBM process. This the borrowing limits for the states to 3.5 per cent
could initially be done by setting up a committee to and 4 per cent of GSDP for all the states for the years
conduct an annual independent and public review 2008-09 and 2009-10 respectively, as opposed to
of FRBM compliance, including a review of the fiscal the 3 per cent target set out in the roadmap of the
impact of policy decisions on the FRBM roadmap. This Government of India for states, following the action
review should present its findings concurrently with taken on the recommendation of FC-XII.
the annual budget and the medium term strategy.
9.69 It should, therefore, be feasible to
9.66 It is to be hoped that this Committee would, undertake a small reduction in the aggregate debt
over time, evolve into a full-fledged Fiscal Council. to GDP ratio of the states from about 27 per cent
We are of the view that given India’s legislative and of GDP in 2007-08 to 25 per cent by 2014-15,
executive structure, the Council should act as an especially if, as we recommend above, the Central
autonomous body reporting to the Ministry of Government assumes responsibility for all
Finance, which should report to Parliament on borrowings due to unanticipated shocks and/or
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Thirteenth Finance Commission
parameter changes of a global or national an aggregate indicator and does not take into
dimension. However, the adjustment path will account the individual circumstances of states. For
have to allow for temporary increases in revenue the purpose of striking a balance between the virtues
and fiscal deficits in 2008-09 and 2009-10, given of customisation and the need to adopt the same
the need for counter-recessionary expenditure. procedure for determining targets for all states in
similar circumstances, we recommend the
9.70 A long term and permanent target for the
differentiated adjustment paths detailed in the
states should be to maintain a zero revenue deficit.
subsequent paras.
The arguments advanced in favour of the
application of the ‘golden rule’ to the Centre also 9.74 All states having a revenue surplus in
apply in the case of the states. It is encouraging that 2007-08 had fiscal deficits of less than 3 per cent of
most states in the Union are already following this GSDP, except Uttar Pradesh, which had a fiscal
rule. In essence, all that the future fiscal roadmap deficit of 3.9 per cent. A state should have adequate
requires is that they continue to do so and the few room for capital expenditure by using its revenue
states that have not yet reduced revenue deficits to surplus and a deficit not exceeding 3 per cent of
zero, endeavour to do so, by 2014-15. GSDP. Any state that has a revenue surplus along
9.71 We recognise that the exceptional with a higher fiscal deficit should compress its
circumstances of 2009-10 may increase the fiscal capital expenditure, or alternately, increase its
pressure on all states. We are unable to provide a surplus on the revenue account. We, therefore,
quantified assessment of the extent to which this is expect that Uttar Pradesh too will be able to come
likely to be the case in individual states in 2009-10 back to the 3 per cent level of fiscal deficit by 2011-12.
on account of data lags. However, given our growth 9.75 We recommend that in the case of all states
assumptions, we are of the view that all states that that attained a zero revenue deficit or a revenue
incurred zero revenue deficit or achieved a revenue surplus in 2007-08, a fiscal deficit of 3 per cent of
surplus in 2007-08 should be able to undertake GSDP be achieved by 2011-12 and maintained
fiscal corrections to return to a zero revenue deficit thereafter. We expect that the maximum fiscal
by 2011-12. Thus, we recommend that the zero deficit that these states would incur in 2009-10 is 4
revenue deficit target be attained by all such states per cent of GSDP, which corresponds to the
from 2011-12 onwards. maximum allowable net borrowing ceiling for that
year. The reform path sets targets from the year
General Category States
2011-12 onwards. The methodology to be adopted
9.72 Three of the general category states incurred for 2010-11 is given in Para 9.86.
a revenue deficit in 2007-08. For these we
9.76 In the case of states having revenue deficit
recommend an adjustment path commencing
in 2007-08, we recognise that the process of
2011-12, to eliminate the revenue deficit by
adjustment in the revenue deficit would have a
2014-15. This is shown in Table 9.4
concomitant virtuous impact on the fiscal deficit.
Table 9.4: RD Path for General Category States with
Since we have recommended an achievable
RD in 2007-08
(per cent of GSDP) correction path for revenue deficit, an abrupt
reduction in fiscal deficit would lead to compression
State 2007-08 2011-12 2012-13 2013-14 2014-15
of capital expenditure, which is not desirable. Thus,
1 Kerala 2.3 1.4 0.9 0.5 0.0
2 Punjab 2.9 1.8 1.2 0.6 0.0
it is required that a fiscal deficit higher than 3 per
3 West Bengal 2.7 1.6 1.1 0.5 0.0 cent is allowed till the revenue deficit comes down
to a certain level, so as to prevent any undesirable
9.73 In order to attain a target aggregate compression of capital expenditure. We have noted
debt-to-GDP ratio of 25 per cent, it will be necessary in these states’ memoranda their willingness to
that the aggregate fiscal deficit/GDP ratio of the attempt a fiscal correction exercise that would allow
states be maintained at 3 per cent of GDP. This is them to maintain and even increase their fiscal
138
Chapter 9: Revised Roadmap for Fiscal Consolidation
space for capital expenditure. Thus, in the case of 9.79 Depending upon the base figure for the fiscal
these states, the fiscal adjustment path requires deficit, special category states can be divided into
them to have capital expenditure less than the states three groups. Four states viz Manipur, Nagaland,
that have already carried out fiscal correction, but Sikkim and Uttarakhand have a base level fiscal
with a slightly relaxed fiscal deficit target in the deficit of more than 3 per cent but less than 6 per
years 2011-12 and 2012-13, so that capital cent. These states will need to make a relatively
expenditure is not compressed to undesirable levels. higher effort in terms of achieving a 3 per cent fiscal
Moreover, additional reduction in the revenue deficit and thus, we require that they achieve this
deficit will allow these states greater fiscal space on level by 2013-14, following the same path prescribed
the capital account. The fiscal adjustment path is for the three general category states in Table 9.5.
indicated in Table 9.5. 9.80 Jammu & Kashmir and Mizoram have even
higher levels of base fiscal deficits, at 7.8 per cent
Table 9.5: FD Path for General Category States
with RD in 2007-08 and 10.3 per cent of GSDP respectively. We recognise
(per cent of GSDP)
that these states require more customised fiscal
correction paths, which require reforms at their end,
State 2007-08 2011-12 2012-13 2013-14 2014-15
but are achievable, nevertheless. Jammu & Kashmir
1 Kerala 3.6 3.5 3.5 3.0 3.0
had a fiscal deficit of 7.8 per cent in 2007-08 that
2 Punjab 3.5 3.5 3.5 3.0 3.0
3 West Bengal 3.8 3.5 3.5 3.0 3.0 included Rs. 606 crore interest payment on NSSF
loans of past years due in the previous year. Thus,
Special Category States the fiscal deficit of Jammu & Kashmir for 2007-08
is overstated by this amount. Correcting for this one-
9.77 Unlike in general category states where the time expenditure, the fiscal deficit adjustment path
fiscal adjustment path has been fixed on the basis of Jammu & Kashmir can start from 5.9 per cent to
of 2007-08, in the case of special category states reach 3 per cent in 2014-15, with equi-proportional
the deficit parameters are highly volatile and, thus, adjustments each year (for J&K please also refer to
the fiscal adjustment path cannot be fixed Para 12.177). Mizoram had a fiscal deficit of 6 per cent
depending only on 2007-08 levels. For this purpose in 2006-07 and 11 per cent in 2007-08. The primary
we have taken the average of three years, viz. reason for this has been the grant received in
2005-06, 2006-07 and 2007-08 to determine the 2006-07, a considerable portion of which got spent
base fiscal parameters on which the future only by 2007-08. Thus, a better point to start the fiscal
adjustment path can be decided. adjustment path of Mizoram would be the average of
9.78 While the revenue deficit is the primary the two, i.e., 8.5 per cent, to be reduced to 3 per cent
driver of the fiscal deficit amongst the general by 2014-15, with equi-proportional annual
category states, this is not the case with special adjustments. The fiscal adjustment path of the six
category states. All the special category states have states with a base level fiscal deficit of more than 3
had an average revenue surplus over the 2005-08 per cent is as shown in Table 9.6.
period, while six states have an average fiscal
deficit higher than 3 per cent of GSDP over Table 9.6: FD Path for Special Category States with
High Base FD
the same period. The reason is that these states
(per cent of GSDP)
are highly dependent on central grants and
State Base 2011-12 2012-13 2013-14 2014-15
although all grants from the Central
Government are classified as revenue receipts, 1 Jammu & Kashmir 5.9 4.7 4.2 3.6 3.0
2 Manipur 4.1 3.5 3.5 3.0 3.0
capital expenditure incurred out of these 3 Mizoram 8.5 6.4 5.2 4.1 3.0
grants is not accounted in the revenue deficit. 4 Nagaland 4.8 3.5 3.5 3.0 3.0
Thus, for special category states, the revenue 5 Sikkim 5.2 3.5 3.5 3.0 3.0
balance is not of much significance for 6 Uttarakhand 5.2 3.5 3.5 3.0 3.0
purposes of fiscal adjustment. Note: The base in the case of each state is explained in paras 9.77 and 9.80.
139
Thirteenth Finance Commission
9.81 The remaining five states, viz. Arunachal our projected nominal growth rate for year t to the
Pradesh, Assam, Himachal Pradesh, Meghalaya and best estimate of GSDP for year t-1. Advance
Tripura, have a base level fiscal deficit of less than Estimates (AE) of the GSDP at factor cost for the
3 per cent and thus, we require that these states previous fiscal year t-1 are issued only just before the
attain a fiscal deficit of 3 per cent of GSDP or less close of the year t-1, in the month of January at the
by 2011-12 while maintaining their revenue balance earliest. This, unfortunately comes a little too late
in the same way as general category states with for the exercise of setting state borrowing limits,
revenue surplus in 2007-08. All special category which is completed by November of year t-1.
states are required to remain in surplus on revenue However, by November, the Provisional Estimate
account during the period. The path for debt, fiscal (PE) for the year preceding, t-2, should be available
deficit and revenue deficit is given at Annex 9.1, 9.2 for all states (a Final Estimate for year t-2 is issued
and 9.3 respectively. some months before the close of year t-1, which is
usually very close to the PE for t-2). Therefore, the
Monitoring and Compliance estimate of GSDP for year t can be obtained by
9.82 To facilitate implementation of the above application of our projected nominal growth rates for
roadmap we recommend that the states’ years t and t-1 to the PE of GSDP for year t-2, thus:
enactment/amendment of their FRLs incorporating Bt=ft*(1+gt*)(1+gt*–1)PEt–2
the above targets should be a conditionality for
release of all state-specific grants. Where
9.83 Some of the structural reforms Bt : Net borrowing limit for year t
recommended for the Centre in this chapter need ft* : Prescribed fiscal deficit for year t as a
to be replicated at the state level as well. The most ratio to GSDP
* *
important of these is the structure of the MTFP, gt , gt –1 : Projected nominal GSDP growth rates for
which, as explained earlier, should be more years t and t-1, respectively
comprehensive, giving details of all significant items PEt–2 : Provisional estimate of GSDP for year t-2
on receipts and expenditure along with the 9.86 The equation in Para 9.85 has to be
underlying assumptions made for projection independently estimated for each state, with the
purposes. MTFP should become an iterative process parameter values specific to each. An index for the
where the receipts and expenditure are arrived at state identifier is not included in the equation so
as the sum of the building blocks thereof and as not to complicate what is in essence a simple
conform to the overall fiscal targets. formulation. The procedure allows continual
updating of the GSDP base for determination of
9.84 Independent review/monitoring is a feature
the net borrowing limits of the state, albeit with a
that is desirable in the FRBM Act and some states
time lag of two years. Without updating of this
already have such a system in place. It is
kind, borrowing limits get prescribed in advance
recomended that all states introduce this feature in
through application of projected nominal growth
their Acts. The states should also attempt to
rates to the estimated GSDP in the base year,
incorporate statements on RCCE, PPP and related
leading to the kind of excessive fiscal compression
liabilities, physical and financial assets and vacant
observed in high-growth states during the period
public land and buildings.
of FC-XII. Our procedure, through the continuous
9.85 We recommend that the Central Government updating of GSDP estimates for the estimation of
set net borrowing limits for states based on the fiscal net borrowing limits, offers a growth incentive to
deficit path outlined above for each state. While states. It should be noted at the same time that
determining the net borrowing limits for any state since these limits are set with respect to
for any year t, the only possible way by which to projections of GSDP, any departures of fiscal
generate a GSDP estimate for year t is by applying deficits normalised with respect to final estimates
140
Chapter 9: Revised Roadmap for Fiscal Consolidation
of GSDP could well depart from the projected loans. Thus, we have assumed that there would
ratios, for reasons beyond the control of the state be no net disbursement of loans from the Centre
in question. to states during the projection period.
9.87 Since the above mentioned reform path does 9.89 It is important to recognise that for
not include projections for the year 2010-11, the successful fiscal consolidation, the key lies in
borrowing limits for that year for each state should maintaining the growth dynamism of our
be fixed in such a manner that the fiscal deficit does economy. There is a two-way relationship between
not exceed the lower of 3.5 per cent or the fiscal growth and fiscal consolidation; or what is called
deficit percentage in 2008-09 as a per cent of GSDP the ‘strategy of expansionary fiscal consolidation’,
of 2010-11, calculated by applying the projected where fiscal consolidation leads to higher growth
growth rates for 2010-11 to the AE of GSDP for the due to higher levels of public and private
year 2009-10. Likewise, for Jammu & Kashmir and investments, which in turn, further facilitates
Mizoram, it may be fixed with a fiscal deficit not maintenance of fiscal stability.
exceeding the lower of 2008-09 fiscal deficit (in per
cent terms) or 5.3 per cent and 7.5 per cent 9.90 However, in order to sustain such a virtuous
respectively, applied to the GSDP of 2010-11. In circle, the proposed fiscal strategy will need to be
case, this amount is less than 3 per cent of the GSDP augmented by reform measures or structural
for 2010-11 projected as stated above, a figure equal measures in areas such as widening and deepening
to 3 per cent of GSDP for 2010-11 may be taken. of markets — particularly factor markets, improving
productivity of public expenditure, implementation
Consolidated Fiscal Roadmap of competition policy covering both private and
public sector enterprises and above all, better
9.88 Based on the fiscal reform path prescribed
governance at all levels of government through
for the Centre and states, the consolidated
increased transparency and accountability.
position during the award period will be as per
Table 9.7. Average lending from the Centre to Debt Relief for States
states on account of external aid for the period
2006-09 has been Rs. 6050 core. The stock of 9.91 Our Terms of Reference require us to:
central loans consolidated as per the ‘… review the state of the finances of the Union and
recommendation of FC-XII and loans of those the States, keeping in view, in particular, the operation
states whose loans have not yet been of the States’ Debt Consolidation and Relief Facility
consolidated, put together, amount to Rs. 1.23 2005-10 introduced by the Central Government on
lakh crore. Assuming that these have to be paid the basis of the recommendations of the Twelfth
in twenty equal instalments, the recovery from Finance Commission and suggest measures for
these loans would be Rs. 6175 crore, which is maintaining a stable and sustainable fiscal
almost equal to the average disbursement of environment consistent with equitable growth.’
141
Thirteenth Finance Commission
Debt Consolidation and Relief Facility of to Rs. 1,28,795 crore, contracted till 31 March 2004
FC-XII and outstanding on 31 March 2005, along with
rescheduling for a fresh term of 20 years, to be repaid
9.92 With regard to the broad approach to the
in 20 equal instalments. Interest at the rate of 7.5
issue of debt sustainability, FC-XII was of the view
per cent was to be charged on the consolidated
that debt relief measures were required as a
rescheduled central loans and the repayments due
pre-requisite for achievement of revenue balance.
from states during the period 2005-06 to 2009-10
FC-XII observed that, apart from providing for
on these were eligible for write-off. The quantum of
specific debt relief, qualitative and quantitative
write-off was linked to the absolute amount by which
measures were also to be prescribed to restrict the
the revenue deficit was reduced in each successive
future growth of debt stock of states beyond
year during the award period. The DCRF envisaged
sustainable levels. FC-XII was of the view that the
that if a state was able to bring down its revenue
debt relief measures recommended with regard to
deficit down to zero by the targeted year 2008-09,
central loans to states needed to be substantial so
the entire repayments due from the state during the
as to encourage better fiscal performance on the FC-XII award period would be written off. Enacting
part of states. FC-XII also recommended the fiscal responsibility legislation, as stated above,
disintermediation and accordingly, central lending was to be a necessary pre-condition for availing of
to states was discontinued, except in the case of debt relief. For debt write-off, there was an additional
fiscally weak states that are not able to raise loans pre-condition stipulating that the fiscal deficit of the
from the market, or in case of external loans. In case states should be contained at the level of 2004-05.
of such states, FC-XII recommended that
computation of interest rates for future loans to the 9.95 The performance of states in aggregate under
states be placed on a rational footing. In addition, DCRF is given in Table 9.8. Twenty-six states have
future repayments, particularly on open market availed of debt consolidation till October 2009. This
borrowings, needed to be catered to in a manner has resulted in interest relief amounting to Rs. 15,689
that would preclude undue fiscal stress in the event crore to these states as against Rs. 21,276 crore
estimated by FC-XII. Sikkim and West Bengal have
of bunching or bullet payments.
failed to receive the benefit of debt consolidation, not
9.93 FC-XII also observed that states should having met the conditionality of enacting fiscal
make efforts to eliminate their revenue deficits so responsibility legislation. Cumulatively, central loans
that borrowings are utilised for generating capital amounting to Rs. 1,13,601 crore have been consolidated,
assets, rather than for financing revenue which is lower than the FC-XII estimates by Rs. 15,194
expenditure. It recommended that in the first crore. Out of the said differential, Rs. 9893 crore is
instance, as a measure of fiscal discipline, all states accounted for by West Bengal (Rs. 9700 crore) and
should enact fiscal responsibility legislation Sikkim (Rs. 192 crore). The balance is attributable to
prescribing specific annual targets for reduction of disparity in the actual base year stock of debt and delays
revenue and fiscal deficits as well as providing a in enactment of FRLs by some states. As regards the
ceiling for borrowings. It unambiguously debt waiver component, waiver benefit of Rs. 18,717
recommended that the fiscal responsibility crore has accrued to the states by the end of 2008-09,
legislation should provide for revenue deficits of
Table 9.8: Summary of Performance under DCRF
states being brought down to zero by 2008-09.
(Rs. crore)
9.94 FC-XII examined the debt position of the
Estimated by Availed of by
states and recommended debt relief (referred to as FC-XII for States till
DCRF), which had two separate components of relief 2005-10 2008-09
in the form of debt consolidation and debt write-off. Debt Consolidation 1,28,795 1,13,601
The debt consolidation component provided for Interest Relief 21,276 15,689
Debt Waiver 32,199 18,717
consolidation of central loans to states amounting
142
Chapter 9: Revised Roadmap for Fiscal Consolidation
as against the estimate of Rs.32,199 crore by FC-XII for of de-linking small savings transactions from the
the five year award period. Consolidated Fund of India and ensuring their
9.96 The scope of FC-XII recommendations operation in a transparent and self-sustaining
excluded two categories of loans, viz. loans given to manner. Since NSSF operates in the public account,
the states from NSSF and central loans given to State its transactions do not impact the fiscal deficit of
Governments for centrally sponsored schemes/ the Centre. Box 9.1 provides details of the scheme.
central plan schemes through central ministries/ 9.98 All deposits under small savings schemes are
departments other than Ministry of Finance. NSSF credited to NSSF and all withdrawals by the
loans were excluded from the scope of debt relief on depositors are made out of accumulations in the
the grounds that NSSF is maintained in the public Fund. The balance is invested in special securities
account of the Government of India and central loans issued by Central and State/UT Governments as per
not administered by MoF were excluded on the their respective shares. These securities are issued
grounds that data for the same were not available. for a period of 25 years, including a moratorium of
five years on the principal amount. The special
Loans from National Small Savings Fund
securities carry a rate of interest as fixed by the
9.97 NSSF was created in the public account of Government of India from time to time. The current
India with effect from 1 April 1999 with the objective rate of interest is 9.5 per cent per annum.
143
Thirteenth Finance Commission
9.99 During the period 1999-00 to 2008-09, the iii) The states were allowed to pre-pay a part
states had issued special securities to NSSF of their liabilities to NSSF (this was availed
amounting to Rs. 4,48,857 crore, of which an of only by Tamil Nadu and Orissa with
amount of Rs. 16,919 crore has been redeemed, pre-paid sums of Rs. 1126 crore and Rs. 200
leaving a balance of Rs. 4,31,938 crore outstanding crore respectively during 2007-08).
as on 31 March 2009. Four states, viz. Maharashtra,
9.102 Despite this relief, there is a difference between
West Bengal, Gujarat and Uttar Pradesh, account
the effective rate of interest payable by the Centre and
for 52 per cent of the total outstanding NSSF debt
that by the states. Figure 9.1 shows the effective interest
of states as on 31 March 2009.
rates on NSSF loans to the Centre and states and their
9.100 Even though the interest rates have come difference since inception of the Fund.
down over this period, the states have had various
issues with the overall scheme regarding the Fig 9.1: Effective Rate of Interest of NSSF
Loans to Centre and States
inflexibility of having to borrow based on availability
rather than requirement, asymmetry between
effective interest rates to the states and the Centre
and the difference between cost to the NSSF and
interest rates.
9.101 In 2005, a sub-committee of the National
Development Council was set up to examine the
various issues raised by the states. Based on its
recommendations, the following changes were
made in the scheme:
i) The states were not compelled to take 100
per cent of the net collections under small
savings and were permitted to go down to 9.103 Both the Centre and the states have seen the
80 per cent, with the remainder being taken interest cost of their respective NSSF debts decline
by the Centre. over the years. However, the average interest rate
paid by the states has been higher than that of the
ii) The rate of interest payable on NSSF Centre from the commencement of NSSF in
securities issued during the years 1999- 1999-2000. This is primarily because the states have
2000 to 2001-02 was reduced from 13.5 per been paying interest only on securities issued
cent, 12.5 per cent and 11 per cent per against collections on current small savings from 1
annum respectively, to 10.5 per cent per April 1999, whereas the Centre is also paying
annum with effect from 1 April 2007 as interest on securities against the deposits
shown in Table 9.9. outstanding on that date, which, at 11.5 per cent,
was lower than the rate of interest on transfers
Table 9.9 : Interest Rates Applicable on Loans during 1999-2000 and 2000-01. The gap between
from NSSF the average interest paid by the states and the
(per cent)
Centre on their respective NSSF debt had narrowed
Year Original Interest Rates post from 1.9 percentage points in 2000-01 to 0.5
Interest Rates NDC sub-committee
percentage points in 2002-03, but thereafter,
recommendations
increased to 1.7 percentage points in 2007-08.
1999-2000 13.5 10.5
2000-01 12.5 10.5 9.104 This widening after 2002-03 has arisen due
2001-02 11.0 10.5 to the following decisions taken by the Centre:
2002-03 10.5 10.5 i) Reduction in interest rate on central special
2003-04 onwards 9.5 9.5 securities issued against outstanding
144
Chapter 9: Revised Roadmap for Fiscal Consolidation
balances on central liabilities from 11.5 per 9.107 The total benefit that would accrue to states,
cent to 10.5 per cent with effect from 1 estimated on the basis of outstanding at the end of
March 2003, in line with general softening 2009-10, is Rs. 13,517 crore during our award
of market interest rates. period. State-wise details of estimates of the benefit
are given in Annex 9.4. The benefit shall continue
ii) Use of debt swap receipts from states to
to accrue even beyond the award period and is
partly redeem the central special securities estimated to reach Rs. 28,360 crore by the maturity
issued against the initial outstanding of the last loan coming under purview.
balances and to replace them with fresh
securities at lower market rates of interest. 9.108 While the relief recommended above only
addresses the interest asymmetry between the
The total amount redeemed between
Centre and states, the structural problems in the
2002-03 and 2004-05 was Rs. 92,652 crore.
existing arrangement need to be reviewed. The
iii) Further redemption of high-interest central issue of high interest rate on these instruments
special securities against outstanding arises because of the administrative mechanism
balances for a sum of Rs. 10,000 crore in presently in place.
2007-08 in order to infuse cash into the 9.109 A rise in the difference between the interest
NSSF consequent upon negative cash rates paid on small savings instruments and the
balance in the Fund due to a drastic decline market rate causes an increase in subscription to
in net small savings collections. these instruments, thereby increasing flows of NSSF
9.105 Consequent to the NDC sub-committee loans to states. With overall borrowings capped by
FRBM targets, the states cannot take recourse to
recommendations, the interest rate on pre-2002-03
open market borrowings. This has already been
loans was reset to 10.5 per cent and the collections
witnessed during 2003-04 and 2004-05. Thus,
from NSSF are being shared by Centre to the extent
states may not be able to benefit from the lower
of 20 per cent. However, the asymmetry has
interest rates, even when market rates go down, as
continued in favour of the Centre even after the
they are saddled with high inflows from high-cost
implementation of the recommendations of the NSSF loans. Conversely, when market interest rates
National Development Council sub-committee. increase, the subscriptions to small savings
Therefore, we feel that there is a case for relief to instruments dip and flows from NSSF dry up. This
the states on loans advanced from the NSSF. has been witnessed in 2006-07 and 2007-08 when
9.106 Since the collections, from 2007-08 net flows for many states even became negative.
onwards, have been flowing to the Centre as well, 9.110 States have also raised issues about the
we have decided to consider relief on loans tenor of this loan, extending to 25 years, which has
contracted till 2006-07. The state-wise position of been used to justify the high interest rate and has
loans contracted till 2006-07 and outstanding led to a situation where states are locked with fixed
estimated as at the end of 2009-10 can be seen in interest debt for a long time with no option of reset
Annex 9.4. Keeping in view the existing effective rate and pre-payment. There is a significant mismatch
of interest for the Centre, the fact that now the between the maturity period of five to seven years
Centre too is using 20 per cent of the collections for most small savings instruments and the term
and the recent trends in flows to NSSF, we of the loan extended from NSSF.
recommend that the loans contracted till 2006-07 9.111 These issues highlight the need for more
and outstanding at the end of 2009-10 be reset at a comprehensive reforms in the overall administration
common interest rate of 9 per cent per annum in of the National Small Savings Fund. Various
place of 10.5 per cent or 9.5 per cent. The repayment committees constituted in the past to look into these
schedule, however, should remain unchanged. issues have made far-reaching recommendations.
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Thirteenth Finance Commission
One of the important recommendations has been did not get the benefit of consolidation. We
linking of interest rate on small savings instruments recommend that this facility be extended to these
to the prevailing G-sec rates, which we endorse. We states during our award period, on the condition
recommend, against this background, that all aspects that they put in place an FRBM Act as stipulated in
of the design and administration of the scheme be this chapter. On meeting this condition, the loans
examined with the aim of bringing transparency, contracted by these states till 31 March 2004 and
market linked rates and other, much needed outstanding as at the end of the year preceding the
reforms to the scheme. year in which the Act is put in place, shall be
consolidated as per the same terms and conditions
9.112 Some reforms are also required at the state
as recommended by FC-XII. However, the benefit
level. In the past there has been a practice of giving
of waiver, as recommended by FC-XII, need not be
various incentives such as cash awards to officials
and other similar measures to promote subscription continued any further to any state.
to small savings instruments. These measures also
Implementation and Compliance
interfere with normal market dynamics. While most
of these incentives, like awards to officials, have 9.116 The relief measures recommended by us in
outlived their utility, all such incentives that either this chapter are all in the nature of one-step actions
add to the cost of administration or affect normal leading to relief over the long term. The above relief
market linked subscription, should be proactively should be given to states only if the states with
withdrawn by the states. FRBM Acts already in place amend the same as
indicated in Para 9.82 and those not having an
Loans not Consolidated in 2005-10 FRBM Act legislate their FRBM Acts. For interest
9.113 As pointed out earlier, FC-XII did not relief on NSSF loans, the loans contracted till
consider central loans given to State Governments 2006-07 and outstanding till the end of the year
for Centrally Sponsored Schemes/central plan preceding the year in which this condition is met
schemes through ministries other than Ministry of should be considered for reset. We have set no
Finance, under DCRF, primarily because they did conditionalities with regard to compliance with the
not have the requisite data. The balance outstanding targets since we believe that the mechanism
in this regard stands at Rs. 4506 crore as at the end mentioned in Para 9.85 for setting borrowing
of 2007-08. The state-wise position for these is limits and allowing open market borrowings to
shown in Annex 9.5. states can act as an effective tool.
9.114 We feel that continuation of these loans is 9.117 The debt waiver, as recommended by
not consistent with the policy of disintermediation FC-XII, was booked in the finance accounts of the
recommended by FC-XII, which is being followed states as non-tax revenues under 0075–
today. Therefore, we recommend that these loans, ‘miscellaneous general receipts’. We feel that this
as outstanding at the end of 2009-10, be written is not desirable as it artificially overstates the
off. It is also recommended that any further lending non-tax revenues of the states. Second, since it is
from Centre to states, under any Centrally accounted as non-tax revenue, it allows states to
Sponsored Scheme, should be completely avoided. spend more within the same fiscal deficit cap,
However, as per the recommendations of FC-XII, a reducing the intended impact on the debt stock of
window for borrowing from the Central states. Ideally, if it were not treated as notional
Government should be available for the fiscally repayment of debt, it would have ensured that, given
weak states that are unable to raise loans from the a fiscal deficit target, the gross borrowing of states
market. would have to go down, thereby having a dampening
9.115 While 26 states have availed of debt impact on debt stock, which was the primary
consolidation, two states, viz. West Bengal and purpose of FC-XII in granting the relief. We
Sikkim, have not legislated FRBM Acts and, thus, recommend that the debt write-off recommended
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Chapter 9: Revised Roadmap for Fiscal Consolidation
by us is accounted in a manner such that it does g) MTFP to make explicit the values of
not artificially affect the revenue or fiscal deficit parameters underlying projections
of the states. for receipts and expenditure and the
band within which they can vary
Summary of Recommendations while remaining consistent with
9.118 To summarise, our recommendations are as targets (Para 9.61).
follows:
v) Transfer of disinvestment receipts to the
i) Revenue deficit of the Centre needs to be public account to be discontinued and all
progressively reduced and eliminated, disinvestment receipts be maintained in the
followed by emergence of a revenue surplus consolidated fund (Para 9.52).
by 2014-15 (paras 9.18 and 9.31).
vi) GoI should list all public sector enterprises
ii) Target of 68 per cent of GDP for combined that yield a lower rate of return on assets
debt of Centre and states to be achieved by
than a norm to be decided by an expert
2014-15. Fiscal consolidation path
committee (Para 9.52).
embodies the steady reduction in
augmented debt stock of Centre to 45 per vii) The FRBM Act specify the nature of shocks
cent of GDP by 2014-15 and for the states that would require a relaxation of FRBM
to less than 25 per cent of GDP by 2014-15 targets (Para 9.62).
(paras 9.29 and 9.69, Table 9.7).
viii) In case of macroeconomic shocks, instead
iii) MTFP to be reformed and made a
of relaxing states’ borrowing limits and
statement of commitment rather than a
letting states borrow more, the Centre to
statement of intent. Tighter integration
borrow and devolve the resources using the
between the multi-year framework
provided by MTFP and annual budget Finance Commission tax devolution
exercise (Para 9.38). formula for inter-se distribution among
states (Para 9.63).
iv) The following disclosures to be made along
with the annual Central budget/MTFP: ix) Structural shocks such as arrears arising
out of Pay Commission awards to be
a) Detailed breakup of grants to states
under the overall category of avoided by, in the case of arrears, by making
non-plan and plan grants (Para 9.41). the pay award commence from the date on
which it is accepted (Para 9.64).
b) Statement on tax expenditure to be
systematised and the methodology to x) Independent review mechanism to be set-
be made explicit (Para 9.42). up by the Centre to evaluate its fiscal reform
process. The independent review
c) Compliance costs of major tax
proposal to be reported (Para 9.43). mechanism to evolve into a Fiscal Council
with legislative backing over time (paras
d) Revenue Consequences of Capital
9.65 and 9.66).
Expenditure to be projected in MTFP
(Para 9.45). xi) Given the exceptional circumstances of
2008-09 and 2009-10, the fiscal
e) Fiscal impact of major policy changes
to be incorporated in MTFP (Para consolidation process of the states was
9.46). disrupted. It is expected that states would
be able to get back to their fiscal correction
f) PPP liabilities to be reported along
path by 2011-12, allowing for a year of
with MTFP (paras 9.48 and 9.49).
adjustment in 2010-11.
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Thirteenth Finance Commission
a) States that incurred zero revenue xiv) Borrowing limits for states to be worked out
deficit or achieved revenue surplus in by MoF using the fiscal reform path, thus
2007-08 should eliminate revenue acting as an enforcement mechanism for
deficit by 2011-12 and maintain the fiscal correction by states (Para 9.85).
revenue balance or attain a surplus xv) Loans to states from National Small Savings
thereafter. Other states to eliminate Fund contracted till 2006-07 and
revenue deficit by 2014-15 (paras outstanding at the end of 2009-10 to be reset
9.69 to 9.72). at 9 per cent rate of interest subject to
conditions prescribed (Para 9.106).
b) The general category states that
attained a zero revenue deficit or a
xvi) National Small Savings Scheme to be
revenue surplus in 2007-08 should
reformed into a market-aligned scheme.
achieve a fiscal deficit of 3 per cent of
State Governments also required to
GSDP by 2011-12 and maintain such
undertake relvant reforms at their level
thereafter. Other general category
(paras 9.111 and 9.112).
states to achieve 3 per cent fiscal
deficit by 2013-14 (paras 9.74 to 9.76,
xvii) Loans from GoI to states and administered
Table 9.5)
by ministries/departments other than
c) All special category states with base MoF, outstanding as at the end of
fiscal deficit of less than 3 per cent of 2009-10, to be written off subject to
GSDP in 2007-08 could incur a fiscal conditions prescribed (Para 9.114).
deficit of 3 per cent in 2011-12 and
maintain thereafter. Manipur, xviii) A window for borrowing from the Central
Nagaland, Sikkim and Uttarakhand to Government to be available for the fiscally
reduce their fiscal deficit to 3 per cent of weak states that are unable to raise loans
GSDP by 2013-14 (paras 9.79 and 9.81). from market (Para 9.114).
d) Jammu & Kashmir and Mizoram
xix) For states that have not availed the benefit
should limit their fiscal deficit to 3 per
of consolidation under DCRF, the facility,
cent of GSDP by 2014-15 (Para 9.80).
limited to consolidation and interest rate
xii) States to amend/enact FRBM Acts to build reduction, to be extended subject to
in the fiscal reform path worked out. State enactment of FRBM Act (Para 9.115).
specific grants recommended for a state to
be released upon compliance (Para 9.82). xx) Benefit of interest relief on NSSF and
xiii) Independent review/monitoring mechanism write-off available to states only if they
under the FRBM Acts to be set up by all bring about the necessary amendments/
states (Para 9.84). enactments of FRBM (Para 9.116).
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CHAPTER 10
Local Bodies
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Thirteenth Finance Commission
the manner and extent of augmentation of the Rs. 5380.93 crore represented 1.38 per cent of the
consolidated fund required. This assessment divisible pool as estimated by them.
was to take into account the provisions for
10.10 FC-XI recommended a grant of Rs. 8000
emoluments and terminal benefits of
crore for PRIs and Rs. 2000 crore for ULBs for the
employees (including teachers); the ability of
five-year period starting 2000-01. The aggregate
local bodies to raise financial resources and
grant of Rs. 10,000 crore represented 0.78 per cent
the powers, authority and responsibilities
of the divisible pool as estimated by them.
transferred to them under articles 243(G) and
243(W) of the Constitution. 10.11 FC-XII recommended a sum of Rs. 20,000
crore for the PRIs and Rs. 5,000 crore for
10.5 In its report FC-XI noted the following
municipalities for the five year period starting
features of SFC reports: 2005-06. The aggregate grant of Rs. 25,000 crore
i) Lack of synchronicity in the periods covered represented 1.24 per cent of the divisible pool as
by the reports of the SFCs and the Finance estimated by them.
Commission.
Basis of Horizontal Distribution
ii) Extreme diversity in the approach, the
content, the period covered as well as quality 10.12 FC-X distributed the PRI grant amongst
of the reports of the different SFCs. the states on the basis of state-wise rural
population as per the 1971 Census. The grant for
iii) Delay on the part of the State Governments urban local bodies was allocated to the states on
in finalising Action Taken Reports (ATRs) the basis of the inter-state ratio of slum population
and placing them in the state legislatures. derived from the urban population figures of the
10.6 FC-XI, therefore, underlined its inability to 1971 Census.
take into account the recommendations of the 10.13 FC-XI distributed grants amongst the states
SFC’s. It, therefore, recommended ad hoc grants. as per the following parameters:
10.7 The ToR of FC-XII had a single reference i) Population: 40 per cent
relating to the measures needed to augment the ii) Distance from highest per capita income: 20
consolidated fund of a state to supplement the per cent
resources of the panchayats and municipalities on
iii) Revenue effort: 10 per cent
the basis of recommendations made by the Finance
Commissions of the concerned states. iv) Geographical area: 10 per cent
v) Index of decentralisation: 20 per cent
10.8 FC-XII noted that both the data furnished
by the states as well as the SFC reports failed to 10.14 FC-XII made allocations to states based on
provide a sound basis for estimation of the required the following indicators:
augmentation of the consolidated funds of the i) Population: 40 per cent
states. It, therefore, recommended grants on an ad
ii) Distance from highest per capita income: 20
hoc basis.
per cent
Quantum of Flows iii) Revenue effort:
10.9 FC-X recommended a grant of Rs. 100 per a) With respect to state’s own revenue: 10
capita of rural population as per the 1971 Census to per cent
PRIs, which worked out to a total of b) With respect to GSDP: 10 per cent
Rs. 4380.93 crore. In the case of urban local bodies
(ULBs), the Commission recommended an amount iv) Geographical area: 10 per cent
of Rs. 1000 crore. The aggregate grant of v) Index of deprivation: 10 per cent
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Chapter 10: Local Bodies
Utilisation of Funds Allocated by the otherwise untied with the proviso that they should
Previous Commissions not be used for payment of salaries and wages.
10.15 The funds allocated by previous Finance 10.20 Specific state-wise amounts were earmarked
Commissions to PRIs and ULBs, along with for maintenance of accounts (Rs. 98.60 crore) and
amounts actually released are detailed in creation of a data base of the finances of local bodies
Table 10.1. (Rs. 200 crore). FC-XI directed that these activities
would have the first charge on the grants.
10.16 Under the FC-XII award 7.42 per cent of the
eligible allocations for PRIs and 10.57 per cent of 10.21 FC-XII recommended that the grant for PRIs
those for ULBs had not been drawn as on 6 be utilised to improve service delivery in respect of
November 2009. While some improvement can be water supply and sanitation schemes subject to their
noticed in the draw down between 1995 and 2000, recovering at least 50 per cent of the recurring cost
the percentage of amounts not drawn remains in the form of user charges. It also stipulated that
significant. Such a situation is not desirable. at least 50 per cent of the grants provided to each
state for ULBs should be earmarked for solid waste
Conditionalities Imposed management through public-private partnership.
10.17 FC-X stipulated that its grant was not to be 10.22 FC-XII also noted the importance of building
applied to establishment costs. It also expected local data bases and maintenance of accounts by local
bodies to provide matching contributions for the bodies and urged that part of their support be
schemes drawn up to utilise these grants. It earmarked by the State Governments for this
mandated that the amount provided would be purpose.
additional to the normal devolution by the State
10.23 FC-XII made a number of recommendations
Governments.
with regard to the constitution, composition, mode
10.18 It recommended that this grant be made and methodology of working of SFCs aimed at
available in four equal instalments from 1996-97, improving their functioning.
when it expected that the local bodies would be in
10.24 FC-XII recognised that the conditionalities
place.
imposed for release of funds to local bodies ultimately
10.19 FC-XI listed the core civic services which it handicapped the very local bodies for which they were
would support, including primary education, meant. Amounts not drawn essentially reflected non-
health, drinking water, street lighting and performance by State Governments. The Commission
sanitation. It indicated that the funds released felt that conditionalities needed to be discouraged. It
should be earmarked for operation and recommended that no additional conditionality be
maintenance of these functions. The funds were imposed over and above the conditions suggested by
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Thirteenth Finance Commission
them, viz. provision of Utilisation Certificates (UCs) Ministry of Home Affairs was considering a
for the previous instalment and the need for the release proposal for amendment in Schedule VI to make
to be passed on by State Governments within 15 days, autonomous district councils more effective and
apart from the end use conditionalities described in these proposals envisaged an enhancement of the
Para 10.21 above. However, despite such a liberal powers of these councils.
approach, some states have not been able to draw
down even the FC-XII grants. About 8 per cent of the Other Recommendations Relating to
grants for the period 2005-09 – the first four years Measures to Augment the Consolidated
covered by FC-XII recommendations–have not been Funds of States
drawn as on 6 November 2009. We understand that 10.28 FC-X made no specific recommendations on
this is primarily due to non-submission of UCs by the the other measures needed to augment the
State Governments. It appears that part of this consolidated funds of State Governments.
handicap is attributable to lack of maintenance of
10.29 FC-XI felt that the states could adopt the
accounts by the local bodies and their slack attitude
following measures to augment their consolidated
towards getting accounts audited. This clearly
funds to supplement the resources of the
reinforces the need for all local bodies to create and
panchayats and municipalities:
maintain a data base encompassing their resources,
operations, and financial performance indicators. i) Imposition of taxes on land/farm income.
Using this as a basis, the accounts could be drawn up, ii) Surcharge/cess on state taxes.
which could then be regularly audited. Both FC-XI and
FC-XII accorded priority to these areas. While a few iii) Levy of profession taxes.
states have set up an excellent set of accounts, the 10.30 FC-XI suggested improvement in efficiency
majority of states, regrettably, have not done so. It of collection of property/house tax as well as
appears that earmarking of grants by FCs for such assignment of a suitable tax with buoyant revenues
critical purposes has not yielded the desired results in lieu of octroi which was abolished. It also
over the last 10 years. A stronger incentive system recommended levy and periodic revision of user
needs to be built in. charges.
10.31 FC-XI also recommended:
Treatment of Schedule V and VI Areas
i) Review of the accounting heads under which
10.25 FC-X stipulated that the grant would be
funds are transferred to local bodies to
distributed to even those states which are not
ensure clarity.
required to have panchayats, to supplement the
resources of similar local level representative ii) Prescription of the format for maintenance
bodies. of accounts by the Comptroller and Auditor
General (C&AG). State bodies would be
10.26 FC-XI identified shares for normal areas and
responsible for preparing the accounts which
excluded areas separately while making state-wise would then be supervised by the C&AG.
allocations. It also stipulated that the shares for the
local bodies in the excluded areas should be made iii) Audit of accounts by the C&AG, whose report
available only after the relevant legislative measures should be placed before a committee of the
were put in place for extending the provisions of State Legislature constituted on the same
the 73rd and 74th amendments to them. lines as Public Accounts Committee.
10.27 FC-XII did not make separate 10.32 FC-XI further recommended the following
recommendations for excluded areas, leaving this legislative changes:
to be done by the respective states in ‘a fair and just i) Transfer of functions and schemes to local
manner’. They did so on the grounds that the bodies to be specifically mandated by
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Chapter 10: Local Bodies
legislation and made operational at the regular elections, constituting the State Finance
earliest. Commissions (SFCs) periodically, as well as
devolving functions through legislation–has broadly
ii) Enactment of legislation to clearly delineate
been implemented by almost all the states. The
the functions of all three tiers of the PRIs
ministry proposes to implement a five-pronged
iii) Integration of the district rural development strategy to invigorate the functioning of the PRIs
agencies and urban development agencies consistent with the spirit of the 73rd Amendment.
with the PRIs/ULBs. These activities, which comprise the second
iv) Review of the Constitutional provision generation of reforms, include:
mandating states having a population of i) Implementing activity mapping such that
more than 20 lakh to have a three-tier each tier of Panchayati Raj is allotted
Panchayati Raj system. clear-cut functions and responsibilities for
v) Defining a strategy for extension of the 73rd those of the 29 activities listed in Schedule
and 74th amendments to uncovered areas in XI which have been devolved by the State
states like Meghalaya, Mizoram, Manipur Governments to the PRIs.
and Nagaland, which have been excluded ii) Providing budgetary support to the PRIs in
from the purview of these amendments. consonance with the devolution of functions
vi) Revitalisation of district planning as well as ensuring transparency for such
committees. devolution through a Panchayati Raj window
in the budget of both the Central Government
10.33 FC-XII noted that the recommendations by and State Governments.
FC-XI relating to maintenance of accounts and
audit of local bodies had still to be implemented. It iii) Encouraging preparation of participative
suggested that the SFCs should follow the procedure plans for all the panchayats which are
for data acquisition as well as report writing consolidated at the district level.
adopted by the Finance Commissions, by using a iv) Capacity building of the PRIs and imparting
similar format and recommending transfer of training to their representatives in their core
resources in a like fashion. functions.
10.34 FC-XII identified 14 best practices which v) Making PRIs more accountable and
PRIs could usefully adopt, including enhancing enhancing opportunities for citizens to
taxation powers, levy of user charges, setting up of review performance and approve plans in
SFCs in a timely manner and regular maintenance gram sabhas.
of accounts and audit.
10.37 The Ministry of Panchayati Raj highlighted
10.35 High priority was to be given to creation of a the growing agency functions of the PRIs relating to
data base and maintenance of accounts through the the implementation of Centrally Sponsored Schemes
use of modern technology and management (CSS) including National Rural Employment
systems. Guarantee Scheme (NREGS), National Rural Health
Mission (NRHM), Mid-day meals, Sarva Shiksha
Views Expressed During Consultations Abhiyan (SSA), Pradhan Mantri Gram Sadak Yojana
(PMGSY), Accelerated Rural Water Supply
Ministry of Panchayati Raj Programme (ARWSP), Integrated Child
10.36 In its memorandum to the Commission the Development Scheme (ICDS), Indira Awas Yojana
Ministry of Panchayati Raj has pointed out that the (IAY), Rajiv Gandhi Gramin Vidyutikaran Yojana
first generation of Panchayati Raj reforms–setting (RGGVY) and Backward Regions Grant Fund
up of the State Election Commissions, conducting (BRGF). The total amount of funds to be released
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Thirteenth Finance Commission
directly to PRIs for 2009-10 is estimated to be Rs. panchayat level taxes like property tax and
95,000 crore. The ministry also noted the relative profession tax, and that towards this end, a
incongruity of PRIs having substantial funds to significant component of the fiscal discipline
implement these CSS on the one hand, and little by criterion should be related to the State Governments’
way of ‘discretionary’ funds for adequately meeting stance towards enlargement and maintenance of the
their administrative costs, performing their core panchayat tax base.
functions, and leveraging the CSS releases to meet
10.42 The ministry has also made a number of
local needs on the other.
suggestions aimed at improving the quality of the SFC
10.38 The ministry classified the requirements of reports and aligning them with the reports of the
PRIs into two categories. The first category is aimed National Finance Commissions. It also suggested that
at improving the operational infrastructure of the the amounts proposed for the PRIs be distributed even
panchayats. They proposed that 4 per cent of the to those areas which are outside the purview of Part
divisible pool be allotted to local bodies and IX of the Constitution (which deals with panchayats)
earmarked for the following activities: to achieve a commonality of purpose in the treatment
(Rs. crore) of local bodies across the nation.
(i) Construction of Panchayat Ghars 23,587
(ii) Providing skeleton staff for each Ministry of Urban Development
Panchayat as well as honoraria
10.43 The ministry noted that the urban population,
and sitting fees for elected
representatives 87,730 which was 28 per cent of the total population in 2001,
(iii) Office expenses and e-governance 11,650 was slated to rise to 38 per cent by 2026. Urban
Total 1,22,967 growth would account for two-thirds of the aggregate
10.39 Under the second category, the ministry population increase during this period. This
proposed that 1 per cent of the divisible pool be significant growth would pose a number of challenges
given as a specific purpose grant-in-aid to to civic bodies in terms of meeting the basic needs of
panchayat for preparation of data bases; the existing as well as incremental population.
incentivisation of State Governments to empower Municipal bodies would need to ensure inclusive
panchayats; and provision of grants for area growth, while planning for optimal utilisation of
planning and capacity building. urban space and creation and maintenance of assets
for providing essential services.
10.40 Referring to funding of PRIs, the ministry
highlighted the delays in disbursal and diversions of 10.44 Despite the increased scope and scale of their
funds earmarked for local bodies and stressed the engagement, the fiscal space of municipalities is
importance of panchayats receiving predictable shrinking. According to the ministry’s memorandum,
financial support in a timely manner to enable them the combined expenditure of urban local bodies
to plan their activities in a comprehensive and smooth shrank from 1.74 per cent of Gross Domestic Product
manner. It proposed that all funds transferred to (GDP) in 1998-99 to 1.56 per cent of GDP in 2002-03
and 1.54 per cent in 2007-08. Internal resources
panchayats be undertaken through bank transfers and
provide for less than half the total expenditure of local
that this process be streamlined by electronically
bodies. Octroi has been abolished in all but one state
tagging and tracking all releases by both the Central
without a viable substitute being put in place. Local
and the State Governments using an independent
bodies have been unable to exploit property tax as a
agency on the lines of the work being done by National
major source of revenue. SFCs have been
Securities Depository Limited (NSDL) for direct taxes.
recommending that a portion of the state revenues be
10.41 It has also suggested that the State transferred to local bodies. Grants from the Centre
Governments should be discouraged from following provide additional support. However, these transfers
the recently established trend of abolishing have not been adequate for local bodies to provide the
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Chapter 10: Local Bodies
desired level of services. A significant part of resource only further integrate ULBs into the
transfer is tied and non-discretionary, limiting the constitutional framework but also provide them
abilities of the urban local bodies to match resources with a buoyant source of revenue. They pointed
to locally felt needs. out that such an approach will not be violative of
Constitutional provisions inasmuch as such a
10.45 The ministry stated that expenditure of local
share of the divisible pool can be provided to the
bodies has significantly increased in the recent past
consolidated funds of the states with the express
due to three reasons: first, the impact of the Sixth Pay
mandate that this be utilised to supplement the
Commission; second, additional operation and
finances of the ULBs. They proposed that the
maintenance costs due to larger investments in civic
horizontal distribution amongst the states be
infrastructure and third, additional investments
carried out on the basis of a few simple
necessary for improving the accounting system,
parameters which could include progress made
computerisation of operations, tax administration,
in decentralisation of funds, functions and
and project monitoring.
functionaries (FFF) as well as implementation of
10.46 On the basis of data collected from 19 states, key reforms. The ministry proposed that the
the ministry estimates the resource gap of the urban reform agenda set out under the JNNURM
local bodies as under: programme could be considered as a
(Rs. crore) conditionality for assistance by FC-XIII to ULBs.
(i) Requirement for all 28 states They also urged that a permanent SFC cell be set
based on a uniform per capita up in each state to monitor local government
requirement of Rs. 1578 per finances, including transfer from line ministries.
annum for provision of core services 63,893
(ii) Requirement of O&M for new 10.50 The proposals made for devolution to PRIs
assets funded under central schemes 20,000 and ULBs by the ministries of Panchayati Raj and
(ii) Requirement under state schemes 16,400
(iv) Impact of the Sixth Pay Commission 24,288
Urban Development respectively aggregate to 8 per
(v) Capacity building 1,290 cent of the divisible pool.
Total 1,25,871
Department of Drinking Water Supply,
10.47 The ministry also pointed out that the
Ministry of Rural Development
aggregate resource requirement of ULBs for
fulfilling all their functions is significantly larger. 10.51 The Department of Drinking Water Supply
For the Jawaharlal Nehru National Urban Renewal pointed to the significant efforts made to provide
Mission (JNNURM) cities this is estimated at Rs. access to potable drinking water, with 97 per cent of
2,76,822 crore for 2005-12. The requirement for all the rural habitations having been covered in the past.
urban areas is projected at Rs. 7,91,080 crore. However, due to lack of focus on the sustainability
of the sources tapped and schemes implemented
10.48 The ministry stated that FC-X, FC-XI, and
earlier, many of the fully covered habitations had
FC-XII had adopted an ad hoc approach to
slipped back to either ‘partially covered’ or ‘not
supporting local bodies. The quantum of funds
covered’ status. Further, only 52 per cent of the rural
released was also very low. They urged that FC-XIII
population has access to basic sanitation. The
should adopt a structured approach and provide for
department highlighted its priority for increasing
support to local bodies in the form of a percentage
coverage, ensuring sustainability, tackling water
of the divisible pool over and above the share
quality issues and institutionalising reforms. This can
earmarked for the State Governments.
be best done by adopting a demand-driven approach
10.49 The ministry suggested that 3 per cent of and ensuring community participation in
the divisible tax pool of the Union be devolved to implementation as well as maintenance of the
urban local bodies over and above the share of schemes through empowerment of the panchayats
the State Governments. Such an approach will not in this sector.
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Thirteenth Finance Commission
10.52 It further observed that supply of drinking of wages and salaries. The need for such support to
water and sanitation are subjects under the State List be untied as far as possible was emphasised by a
which find mention in the Schedule XI. These number of State Governments.
subjects need to be transferred to the PRIs who
10.55 These State Governments also suggested
should assume responsibility for their operation and
horizontal devolution parameters for inter se
maintenance. The department highlighted the steps
distribution of local body grants. Most of these
being taken by them to empower PRIs and requested states were of the view that population, area, income
the Commission to provide resources to PRIs to distance, revenue effort, and index of
manage, operate and maintain water supply systems decentralisation could be considered as criteria,
as well as implementing sanitation programmes. though their perception on the weights to be given
They posed a requirement of Rs. 48,160 crore for the for each parameter varied. A few states suggested
following purposes: that the deprivation index, tax effort, quality of
(Rs. crore) expenditure, scheduled caste (SC)/scheduled tribe
(i) Maintenance of functional rural (ST) population ratio, revenue requirement, and
drinking water supply assets such as proportion of own resources be also considered as
hand pumps, rural piped water supply
schemes, multi-village water supply
parameters for horizontal devolution. Two states
schemes, public stand posts, etc. 12,124 suggested a pure per capita devolution based upon
(ii) Replacement and rejuvenation of the population in 2001–one suggested Rs. 150 per
non-functional rural drinking capita and the other Rs. 500 per capita.
water assets 5,500
(iii) Augmentation of 10% of the 10.56 A number of state-specific proposals also
functional schemes 2,121
found place in the respective state memoranda.
(iv) Garbage/solid waste management
services 9,300 These included, variously, requests to discard the
(v) Sewage disposal 18,601 revenue effort as a criterion, discard population as
(vi) O&M in rural sanitation programmes 273 a criterion, use 2001 population as a criterion, use
(vii)Capacity building of PRIs 240
1971 population as a criterion, and use the extent
Total 48,160
of scheduled areas in the state as an additional
State Governments’ Views criterion within the area criterion.
10.53 In their memoranda to the Commission, 10.57 Three states suggested computing an index
14 State Governments have made suggestions relating of decentralisation and using it as a parameter. The
to the functioning of local bodies. Most of them wanted sub-indices they proposed to compute this index
the Finance Commission to significantly increase its included: (i) untied investible funds devolved to
support to local bodies. Seven State Governments have Local Self Governments (LSGs) as a percentage of
suggested that local bodies be given a share of the state expenditure; (ii) own revenue of LSGs as a
percentage of the state’s own revenue; (iii) the
divisible tax pool over and above the states’ share to
number of personnel directly employed by the local
enable them to participate in the buoyancy of central
bodies vis-à-vis those in the employment of the State
tax revenues. Suggestions on the amount of such a
Government; (iv) the percentage of local bodies not
share ranged from 4 per cent to 10 per cent.
having elected representatives and (v) delegation
10.54 It was urged that the increasing obligations of financial and administrative authority and
of local bodies to provide basic services, responsibilities to local bodies and the extent of
infrastructure, as well as meeting other civic needs fiscal decentralisation.
required a significant stepping-up of assistance. In
view of the significant burden arising from the Consultations with Local Body
implementation of the recommendations of the Representatives in State Capitals
Sixth Pay Commission, states requested that for FC 10.58 We consulted with representatives of both
support should be allowed to be used for payment urban and rural local bodies of each tier, as well as
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Chapter 10: Local Bodies
the autonomous district councils during our visits ii) Keeping in mind the rapid pace of
to the states. These included 37 mayors, 65 zilla urbanisation, funds should be distributed
parishad presidents, 112 PRI representatives and among urban and rural bodies in the ratio
114 ULB representatives. They made many relevant of 70:30 instead of 80:20 as was allocated
and useful suggestions which have been listed in by FC-XII.
the three categories below: iii) Earmarking of funds should not be confined
to water supply and solid waste
Decentralisation Issues
management. Support should also be
i) States should be incentivised to delegate provided for roads, storm water drains, and
funds, functions and functionaries to the sewerage.
local bodies. Expenditure of PRIs as a
iv) The Finance Commission should support the
proportion of GDP is very low. This should
establishment of a geographic information
be increased to at least 5 per cent.
system (GIS)-based property tax system for
ii) All national rural schemes relating to health all local bodies aimed at strengthening their
and education should be implemented revenues.
through the panchayats only. v) Grants should be untied.
iii) Centrally Sponsored Schemes such as vi) Each panchayat should be given a minimum
NREGS should have sufficient flexibility to grant of Rs. 10 lakh irrespective of
take into account local needs and provide for population or any other criteria. Each zilla
adequate material component in order to panchayat should be given a special grant of
create proper assets. Rs. 5 crore to meet local needs.
iv) Small towns which cannot access JNNURM vii) The Finance Commission should directly
are in a precarious financial position. They devolve funds to autonomous district
should be supported with regard to provision councils instead of routing it through State
of core services. Governments.
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Thirteenth Finance Commission
by the panchayats. Substantial tied funds are being Administrative Reforms Commission
transferred to them for fulfilling these functions.
10.63 The Second Administrative Reforms
However, this has not been accompanied by a
Commission (SARC), in its second report on ‘Local
corresponding increase in devolution of untied funds
Governance – An Inspiring Journey into the
to the panchayats. This has restricted their ability to
Future’, has made detailed recommendations
respond to local needs and synergise the impact of
covering a wide gamut of areas relating to rural and
various development programmes.
urban local bodies. The recommendations cover
10.60 Despite this, however, the Planning changes in the constitutional and functional
Commission noted that this situation does not structure of rural and urban local bodies,
justify the consideration of any proposal to transfer improvements in the working of their allied
a share of the divisible pool directly to the local institutions – the State Finance Commissions (SFC)
bodies, as such an action does not have the sanction and the State Election Commissions (SEC), the
of the Constitution. Such a proposal would vitiate scope for effectively implementing decentralised
the Constitutional mandate that the Finance planning, improving functional devolution as well
Commission recommend augmentation of the as enhancing the role of these institutions in
consolidated fund of the states on the basis of the improving the delivery of public services. While
recommendations of the SFCs. most of the recommendations relate to areas which
are outside the scope of the ToR of the Commission,
Eleventh Plan Document some of these are connected with the work of this
10.61 The Eleventh Plan document recognises the Commission and it is to these that we now turn.
criticality of involving PRIs in planning, 10.64 The SARC has recommended amendment of
implementing, and supervising the delivery of articles 243G and 243W to make it mandatory, for
essential public services. It notes that this would be state governments to vest power and authority in
essential to ensure inclusiveness in the growth local bodies, consistent with the XI and XII
process and would require adequate incentives to Schedules of the Constitution. The SARC has traced
be put in place for State Governments to empower
the progress of empowering local bodies to make
PRIs through devolution of funds, functions, and
plans and implement programmes aimed at
functionaries to the PRIs. This could be done
economic development and social justice since the
through a suitably designed devolution index.
73rd and 74th amendments were passed in 1993. It
10.62 It further proposes that local governments has pointed out that substantial progress still needs
be given a pivotal place in centrally sponsored to be made. It has suggested a number of steps,
schemes in keeping with their constitutional including a clear delineation of functions for each
mandate of economic development and social tier through activity mapping and passing of a
justice. Local governments being closer to the framework law to formalise the relations between
people, are in the best position to appreciate the state and local governments. It also suggested
problems holistically, identify local priorities and that five additional subjects be included in Schedule
forge a consensus amongst disparate socio- XII as part of the responsibility of urban local
economic groups. They are also better placed to bodies.
come out with cross-sectoral solutions based upon
appropriate technologies. It notes that the 10.65 The SARC has supported the recommen-
devolution of functions to panchayats through dations made by FC-XII directed at improving the
legislative or executive order has not been matched working of the SFCs. It also reiterated the
by a concomitant transfer of funds. This is a major recommendation of FC-XI proposing amendment of
weakness. At the same time, panchayats themselves Article 243 to ensure synchronicity between the
have also failed to effectively utilise their inherent recommendations of the SFCs and those of the
taxation powers. National Finance Commission. It has supported
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Chapter 10: Local Bodies
capacity building initiatives for the local bodies and revenue receipts through widening of their tax base,
encouraged outsourcing of specific functions. It improvement of collection efficiency and increase
proposes setting up of district councils to replace the in tax rates subject to fiscal capacity constraints.
present district planning committees, and the To effectively monitor devolution and assignment
metropolitan planning committees envisaged in the of funds, it recommends that a separate panchayat
Constitution. These councils would prepare line be created in every State Government budget
comprehensive district plans for both the urban as and funds be electronically transferred to the local
well as the rural areas in their respective districts. bodies.
10.66 The SARC notes the importance of 10.69 It also exhorts State Governments to
enhancing accountability of the panchayats parallel effectively implement the Panchayats (Extension to
to the process of enhancing their powers and Scheduled Areas) Act (PESA) and calls for
authority. It proposes setting up of audit amendment of all legislation (both central and
committees in the local bodies as well as a separate state) to make it consistent with PESA.
standing committee for local bodies in the state
legislature which would consider the reports of the 10.70 The SARC has recommended that State
C&AG, besides constituting a separate ombudsman Governments should ensure that all local bodies
for local bodies by amending the respective state switch over to the unit area method or capital value
Panchayati and Municipal Acts. The proposed method of assessing property tax and limit
ombudsman, with jurisdiction over a group of exemptions. Tax details should be placed in the
districts and large municipal corporations, would public domain and a computerised data base of all
investigate cases and submit reports relating to properties using GIS mapping should be prepared
corruption and maladministration in local bodies, for all municipal areas. Land should be leveraged
including its elected representatives, to the Lok as a resource by local bodies. Sale proceeds of land
Ayukta, who would forward the report with his collected by development authorities should be
recommendations to the Governor. Simultaneously, shared with the municipalities to the extent of at
the powers of the State Government to suspend least 25 per cent. Legislation should be introduced
panchayats and rescind the resolutions passed by to regulate the real estate sector.
them would be withdrawn. 10.71 This Commission endorses most of the
10.67 In the matter of accounting and audit, the recommendations which fall within our Terms of
SARC endorses the National Municipal Accounts Reference. Such recommendations seek to empower
Manual (NMAM) for adoption by all State local bodies and provide them with a statutory base
Governments. It emphasises the need to ensure the for collecting revenue and providing core civic
suzerainty of the C&AG over the audit of accounts services, while at the same time, emphasising the
of urban local bodies, even if they are to be initially need for accountability through a formal audit and
undertaken by other agencies. It calls for accountability mechanism. The present
institutionalising the existing arrangements under constitutional structure envisages that the State
which the C&AG provides technical guidance and Governments will drive the degree to which local
supervision over maintenance of accounts and audit bodies are empowered. Implementation of a
of PRIs and ULBs, as well as for providing functional number of SARC recommendations requires
independence to the Director, Local Fund Audit at legislative (including Constitutional) changes which
the State Government level. It proposes that FC demand the consent and active support of State
grants be released to local bodies only after State Governments. They can, at best, be implemented
Governments accept the technical guidance and only in the medium term.
supervision (TG&S) of the C&AG.
10.72 Other recommendations of the SARC, like
10.68 The SARC recognises the need for local those relating to accounting and audit, and
governments to broaden and deepen their own improving the performance of SFCs, have not yet
159
Thirteenth Finance Commission
been implemented despite having been on the of the Constitution to provide for this. It suggested
agenda for a significant period of time. Other that the ceiling on profession tax imposed by
bodies including previous Finance Commissions Article 276 of the Constitution be removed and
have made similar recommendations earlier on, Parliament be vested with the power to determine
which do not require Constitutional changes, but this limit.
which have not been implemented either. It is,
10.75 The Commission underlined the
therefore, necessary that State Governments be
importance of prompt audit of accounts of local
strongly incentivised to implement the
bodies and recommended that the C&AG be
recommendations in the latter group–a task which
empowered to conduct the audit or lay down
we propose to address.
accounting standards for the panchayats. It should
also be ensured that the audit cycle starting from
National Commission for Review of
the Constitution conduct of audit through submission of report and
ending with taking action on the audit findings be
10.73 We discuss only those recommendations of limited to one year after the close of the concerned
the National Commission to Review the Working of financial year.
the Constitution which are of direct relevance to our
work. The Commission concluded that some State Studies/Seminars Sponsored by
Governments were unwilling to share their fiscal FC-XIII
powers with local bodies despite the 73rd and 74th
amendments. Even in the case of those State Conference on ‘Empowering Panchayati
Governments which had decentralised their Raj Institutions’
functions, such an exercise had merely been limited
10.76 The Commission sponsored a conference on
to entrusting these bodies with the responsibility for
‘Issues before the Finance Commission:
implementation of State Government schemes. Local
Empowering Panchayati Raj Institutions’
bodies had not been given an opportunity to prepare
conducted by the Institute of Rural Management,
and implement plans on their own, thus reducing
Anand on 22-23 December 2008 wherein a number
them to an implementing arm of the State
of important issues relating to devolution of funds,
Government. The Commission proposed that the
functions and functionaries, capacity building and
Constitution be amended and the subjects listed in
constitutional provisions were discussed. The
Schedules XI and XII be mandatorily assigned to
findings of the conference were presented to a select
rural and urban local bodies respectively, so that
group of SFC Chairmen the next day and their views
these subjects could statutorily form a distinct fiscal
as well as suggestions incorporated into the
domain of the local bodies. This would enable them
conference recommendations.
to fulfil their constitutionally assigned role as units
of local self-government. 10.77 The major recommendations of the
conference have been listed in the three categories
10.74 The Commission also found that the
below:
requirement in Article 280(bb) and (c) of the
Constitution, that the Finance Commission make
Decentralisation Issues
its recommendations about local bodies on the
basis of the recommendations of the SFCs, was i) Some states have followed a ‘big bang’
unduly restrictive. It felt that a requirement that approach to decentralisation. While this may
the reports of the SFCs be considered by the be difficult to emulate, states should be
National Finance Commission was adequate. It incentivised to fully empower local bodies
recognised the need to ensure synchronicity in the through linking the volume of both CSS and
periods covered by the National FC and SFCs and FC releases in proportion to the extent of
suggested a suitable amendment in Article 243(I) decentralisation achieved.
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Chapter 10: Local Bodies
ii) Local bodies should be assisted both by the vi) The C&AG should issue directions for
Central and State Governments for developing classification of revenue receipts of the states
their administrative structure as well as providing details of duties, tolls and fees
meeting the costs of establishment. collected consistent with Article 243(I) of the
Constitution so that the SFCs can make
iii) It is desirable that all funds relating to local
governments be routed through the local appropriate recommendations.
bodies and not through any statutory or vii) The work of the SFCs needs to be streamlined
non-statutory body whose activities overlap and strengthened in many ways. There needs
with theirs. All such parallel bodies may be to be some standardisation in the methods
abolished so that funds flow directly to the and approaches of the SFCs. SFCs could use
local bodies through the State Governments. templates which help in assessing needs as
well as in preparing their reports more
Operational Issues
systematically and uniformly. SFCs are also
i) PRIs, in turn, should be motivated to hampered by lack of good quality data.
maximise their own tax and non-tax FC-XIII also needs to address these issues.
revenues through streamlining
administration, enhancing tax assessment viii)The National Finance Commission and the
and collection efficiency and improving State Finance Commissions should be
quality of services. constituted simultaneously. Synchronising
the periods of the FC and the SFCs may be
ii) There should be an arrangement for advance
required to avoid the problem of ‘gap’ years
sanction as well as automatic transfer of
in the transfers.
funds to local bodies to ensure predictability
of devolutions, in terms of both volume as ix) There should be an SFC cell in each state to
well as timing. monitor efficient and effective data
availability. This cell could also monitor and
iii) The recommendations of the FC-XI to
evaluate the performance of the PRIs at
enhance the ceiling on profession tax as well
as taxing Central Government properties regular intervals. Setting up of an
should be operationalised. independent national agency to facilitate
data and support exchanges among different
iv) ULBs should be supported in implementing SFCs could also be considered.
reforms to enable them to improve their
credit rating and obtain market-based Issues Related to Support from the
financing. Finance Commission
v) PRIs should be provided support for
i) The previous Finance Commissions should
meaningful compilation of accounts. This
not have assumed that decentralisation is
should include firming up of accounting
fiscally neutral and does not entail any extra
formats and standards facilitating
financial burden on the states.
appropriate audit of their transactions as well
Decentralisation results in widening the
as building an interactive electronic network
ambit and improving the quality of services
linking accounting, auditing, performance
review, financing, and monitoring functions. being provided by the local bodies. This
As submission of utilisation certificates has requires substantially larger outlays. FC-XIII
proved a major hurdle in the past, these steps should attempt to enhance the local
will also ensure that State Governments are governments’ share of public expenditure
able to fully draw down the grants of the from the present 5-6 per cent to about 15-16
Finance Commission. per cent in the short run.
161
Thirteenth Finance Commission
ii) The Commission should enable local bodies viii) Slum development.
to improve their functioning by significantly
10.79 This report has been published on our
increasing the volume of funds transferred
website (www.fincomindia.nic.in). We would urge
to them. It should discard the ad hoc
urban local bodies to consider such practices for
approach adopted by previous Commissions
implementation.
and provide for transfer of 5 per cent and 3
per cent of the divisible pool to the rural and Urban Property Tax Potential in India–
urban local bodies, respectively. Cities and Towns
iii) Horizontal distribution of the transfers 10.80 This study had three objectives: first, to
should be based upon a few simple fiscal assess the present property tax collection in the
parameters. These could include the share country; second, to estimate the potential for
of untied funds devolved to total devolution property tax in all the municipalities in the country;
and the share of own funds as a percentage and third, to suggest how this potential can be best
of own resources of State Governments. Both exploited by municipalities. A detailed survey was
these parameters should be verifiable conducted in 36 large municipal corporations, each
through accounts. with a population of more than 1 million. This
iv) The FC should be more proactive towards formed the basis of the analysis. These cities account
ULBs. Funding should be provided so as to for 35 per cent of the urban population in the
be consistent with the norms for core service country. The main findings of the study are outlined
provision. below:
v) In the areas where parts IX & IXA of the Present Status of Property Tax Collections
Constitution do not apply, there are no PRIs.
Support is required for the agencies which i) Property tax revenues in the 36 largest cities
provide local government functions in these in India are estimated at Rs. 4522 crore,
areas. yielding a per capita revenue of Rs. 486. In
these cities, on an average, property tax
Study of Municipal Best Practices revenues constitute 23 per cent of the total
municipal revenues and 28.5 per cent of own
10.78 A study on municipal best practices was also
source revenues. There are large inter-city
supported by the Commission. The report identified
variations in property tax revenues, with the
a number of best practices which could be usefully
Mumbai Municipal Corporation registering
emulated by most municipalities. These included:
a per capita annual revenue of Rs. 1334 as
i) Maintenance of municipal finance statistics. against Rs. 25 for the Patna Municipal
ii) Resource mobilisation. Corporation.
iii) Expenditure compression through ii) Property tax revenues depend upon:
outsourcing and Public Private Participation (a) enumeration of properties in the
(PPP). municipal tax register; (b) the collection rate;
iv) Adoption of accrual accounting. (c) the assessment and valuation system; (d)
the extent of exemptions and (e) the level of
v) Delegation of funds, functions and
tax rate.
functionaries (FFF).
iii) On all these counts, there are serious
vi) Transfer of funds from GoI/State
shortcomings in municipalities today which
Governments.
hinder efficient collection. Absence of a
vii) Accountability of local bodies to the Citizens’ formal count of properties in municipalities
Charter/NGO participation, etc. is one of the major handicaps in exploiting
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Chapter 10: Local Bodies
the true potential of property tax in India. properties and collection of the demands
The percentage of assessed properties raised on assessable properties at a
actually paying taxes in this ‘large city minimum of 85 per cent efficiency.
sample’ was found to be 63 per cent, and it
is estimated that this would amount to 56 How Best to Exploit this Potential
per cent of the universe of properties. Even i) States should focus on improving coverage
for the house properties actually assessed, and collection efficiency. Property tax
poor collection efficiency at 37 per cent of revenues could increase to Rs. 22,000-
demand for the sample, along with non- 32,000 crore, merely by bringing all cities
indexation of property values exacerbated to an 85 per cent coverage level and 85 per
the problem. cent collection efficiency, without changing
any other variables.
iv) The all-India collection of property tax yield
blown up from the 36-city sample is ii) States should establish a Central Valuation
estimated to be between a low of Rs. 6274 Board on the lines of the West Bengal Central
crore and a high of Rs. 9424 crore, or Valuation Board in order to standardise
between 0.16 and 0.24 per cent of the property assessment and valuation. Property
country’s GDP. values should be indexed and guidance
values used.
Potential for Property Tax
iii) States should institute a GIS system for
i) It is clear from the low ratio, even within the mapping all properties in cities, which will
36 large city sample of assessed properties result in increased coverage.
to the universe of all properties, and the low iv) The Centre should introduce specific
collection to demand ratio, that there is conditionality in JNNURM aimed at
tremendous scope for improvement in reducing the gap between the assessed and
revenue from property tax, even without market value of properties.
increasing rates, and indeed, even without
any structural alteration of the basis of levy. 10.81 The international experience on property tax
collections as a percentage of GDP is summarised
However, because the observed percentages
in Table 10.2 below. The present estimates for
of tax collection efficiency cannot be
collection in India at 0.25 per cent are well below
extended to all urban areas from the sample,
even the developing countries’ average of 0.60 per
it is not possible to quantify the revenue
cent and far lower than the developed countries’
increase to be expected by improving tax
average of 2 per cent. The need for reform is evident.
collection efficiency. It is urgently required
that the municipalities in India complete 10.82 While increasing the tax coverage and
formal registration of all properties, whether improving collection efficiency are immediate,
assessable or not. This needs to be followed compelling objectives, reform of the property tax
by the complete assessment of all registered system also requires improved valuation and
OECD Countries (number of countries) 1.24 (16) 1.31 (18) 1.44 (16) 2.12 (18)
Developing Countries (number of countries) 0.42 (20) 0.36 (27) 0.42 (23) 0.60 (29)
Transition Countries (number of countries) 0.34 (1) 0.59 (4) 0.54 (20) 0.67 (18)
All Countries (number of countries) 0.77 (37) 0.73 (49) 0.75 (59) 1.04 (65)
163
Thirteenth Finance Commission
rationalisation of the structure of tax rates. The real predictable basis. It prepares property tax assessment
potential of property taxes lies in correctly assessing notices for all the municipalities in Ontario.
the property values and in choosing an appropriate
10.85 There are 4.7 million properties in the
rate structure. An appropriate strategy will include
province of Ontario. Approximately 80,000 new
the following elements:
properties are added to the inventory each year
i) Broadening the tax base by instituting a through subdivision of land; 90 per cent of these
geographic information system for mapping properties are residential in nature. MPAC uses a
properties in all cities with a population of differentiated approach to value property. Depending
more than 1 lakh. upon the property to be valued, it uses either a direct
ii) Establishing a Central Valuation Board in comparison approach or an income approach or a
each state, on the lines of the West Bengal cost approach. Wherever feasible, it uses a computer-
Central Valuation Board in order to assisted mass appraisal system. Under this, a number
standardise property valuation, which will of models are built for each distinct category of
also be charged with setting guidance values property, which are then used as one of the inputs
and subsequent updating. for assessing the property value of that category.
iii) Improving collection efficiency, identifying 10.86 The work of the MPAC involves collection of
tax evasion and delinquency and enforcing property related data from all municipalities. Data
penal clauses. on location, area, structural characteristics,
ownership and utilisation are collected through field
Institutions to Assist Municipalities in offices of the MPAC. The next steps include data
Assessing Property Tax analysis, fine-tuning of assessment value findings
through field offices, production of assessment
Municipal Property notices and mailing them to municipalities, conduct
Assessment Corporation of open houses and considering requests for
10.83 In Canada, the provincial governments reconsideration of assessments. The actual levy and
determine municipal responsibilities and what collection of property tax is done by the
taxes municipalities can levy, sets standards for municipalities. Appeals against the assessment lie
service delivery, prohibits municipalities from before an Assessment Review Board set up by the
running an operating deficit; restricts municipal State Government. The Board’s decision is final.
borrowing for capital expenditures and provides 10.87 From 1 January 2009, MPAC has moved to a
conditional and unconditional transfers to them.
four-year assessment cycle. Property value as on 1
While federal and provincial governments are
January 2008 will be built into the assessment, step-
funded by various taxes including income tax, gas
wise over the next four years, rising from the 1 January
tax and excise taxes, municipal governments are
2005 value such that tax on the full value as on 1
significantly dependent upon property tax. Property
January 2008 will be applied for the 2012 tax year.
tax forms 54 per cent of municipal revenues
Thus, property is taxed on value with a four-year lag.
followed by user fees (22 per cent) and provincial
transfers (16 per cent). 10.88 Triggers for assessment include the issue of
building permits, sale of property, appeal or request
10.84 Municipal Property Assessment Corporation
for reconsideration as well as vacancy applications.
(MPAC) is a not-for-profit corporation funded by
These are inherent mechanisms to increase
Ontario’s 445 municipalities. All Ontario
coverage and update property values outside the
municipalities are its members. Its board of directors
assessment cycle.
is appointed by the Ontario Ministry of Finance.
MPAC provides assistance to municipalities to assess 10.89 MPAC provides a fine example of how
properties on a comprehensive, consistent and municipalities can combine to avail of high value
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Chapter 10: Local Bodies
services aimed at enhancing the efficiency of their the SFCs set up by the states are provided in Annex
mainstay–property tax collections. 10.2. Only three states have appointed SFCs whose
recommendations cover the period 2010-15, the
West Bengal State Valuation Board period covered by this Commission. For the above
10.90 A parallel effort in India is the West Bengal reasons, the data supplied by the State Governments
Valuation Board. This Board, set up on the basis of as well as the reports of the SFCs did not provide a
the West Bengal Valuation Board Act 1978, seeks sound basis to quantify uniformly across all states the
to bring about a uniform and rational system of supplementation required to the resources of their
valuation of municipal properties throughout the respective rural and urban local bodies. Annex 10.3
state excluding the Kolkata Municipal Corporation lists the number of rural and urban local bodies in
limits. The primary function of the Board is to each state. As will be seen, the aggregate number of
enumerate and assess the value of properties in all local bodies reported to this Commission by State
the municipalities in the state. It has adopted a Governments was 2,49,918 against a figure of 2,47,408
transparent approach to its functioning and has reported to the FC-XII. This increase is consequent to
made available publicly the procedure it adopts for the bifurcation of existing panchayats during the
valuation of property. It has undertaken survey interregnum.
work in 117 ULBs and published 217 valuation lists 10.93 There are significant discontinuities in data
till 2007-08. The Board has faced a number of relating to revenue and expenditure of local bodies
teething problems since its inception, including submitted by State Governments to FC-XI, FC-XII,
resource and capacity constraints, thus constraining and to this Commission. These discrepancies
its service delivery. detract from the credibility of the data.
Unfortunately, successive Finance Commissions,
Data Collected by the Commission including our own, have been unable to
10.91 This Commission sought information from independently verify the data provided on local
State Governments on the functioning of SFCs, the bodies. The need to put in place a system where
status of implementation of recommendations of financial and performance data of local bodies can
FC-XI and FC-XII, as well as the physical and be audited and confirmed credibly cannot be
financial performance of local bodies. The specific overemphasised. The data on fiscal performance
issues on which particulars were sought are detailed provided by State Governments is being verified by
in Annex 10.1. the FCs with reference to the respective State
Finance Accounts. A similar system needs to be put
10.92 The data provided varied in quality across State
in place for data relating to local bodies as well.
Governments. While some State Governments
While we have not utilised the information on
furnished good quality data, most of them provided
revenue and expenditure of local bodies received
data which was sparse, and frequently inconsistent
from states, we are placing it on our website for
with the data furnished to earlier Finance
information.
Commissions. Despite considerable follow-up as well
as an attempt to give the State Governments an 10.94 Ten years have elapsed since FC-XI underlined
opportunity to confirm the data submitted by them, the need for maintaining a data base as well as up-to-
significant problems remain with the quality of data date accounts and made a provision for supporting
supplied to us by State Governments. Compounding State Governments in addressing these shortcomings.
this problem was the fact that the SFC reports Five years have elapsed since FC-XII highlighted
submitted to the Commission were widely divergent similar inadequacies and made similar
in the quality of their analyses and the scope and scale recommendations. Much has been said by the earlier
of their recommendations. Non-synchronicity of the Finance Commissions on this important subject.
period of recommen-dations of the SFCs and this Despite this, little improvement has been noted in the
Commission was an additional handicap. Details of situation. While we recognise, appreciate and support
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Thirteenth Finance Commission
the recommendations of the previous Commissions of functions transferred based upon notifications;
on the issue of data bases, accounts, and audit, clearly the number for which activity mapping has been
an alternative approach may need to be adopted to completed; whether district planning committees
address these issues beyond funding support for these are being involved in the preparation of the district
initiatives. plans; whether gram panchayats are implementing
the flagship programmes of the government; and
Issues to be Addressed by to what level these bodies have been empowered
the Commission to sanction expenditure. Data collected on
10.95 Based upon the consultations described functionaries include the nature of their support
above, the studies sponsored by the Commission, to PRIs, accountability and training. A simple
the recommendations of the previous Commissions, average of 5 sub-indices for functions, 15 sub-
as well as the status of their implementation, the indices for finances and 14 sub-indices for
following issues have been identified by us as functionaries then determined the devolution
needing resolution. In our view these issues need index, based upon which the states have been
to be effectively addressed to further empower local ranked.
body institutions, improve their service delivery and 10.98 This is an excellent ground-breaking
ensure their financial sustainability. initiative to measure the extent of devolution to
PRIs across states. The questionnaire adopted is
Devolution-Related Issues reflective of the areas where panchayats need to be
empowered. We are, however, hesitant to adopt this
Use of a Devolution Index
index for the following reasons:
10.96 Some State Governments have proposed the
i) Data provided by the State Governments
use of a devolution index as a parameter for inter
have not been independently verified. For
se distribution of local body grants. They have
the reasons mentioned in Para 10.93, this is
argued that it is necessary to incentivise states to
a critical requirement.
devolve functions and funds to local bodies,
although an index of this kind is basically a reward ii) This index was not inclusive. All states were
for past moves in this direction rather than an not covered. Seven states were eliminated in
incentive for further effort. the framework component test which
required states to establish SFCs, set up
10.97 The most significant initiative so far for
district planning committees and conduct
creation of a devolution index has been the
regular elections to be eligible for ranking.
Panchayati Empowerment Accountability and
Only the remaining 21 states were ranked.
Incentive Scheme (PEAIS) implemented by the
Ministry of Rural Development through the iii) Some states felt that the data collected were
National Council for Applied Economic Research not comprehensive. They felt that
(NCAER). Data on panchayati functions, finances implementation of e-governance by some
and functionaries were directly collected from states, and the degree of comprehensiveness
state governments by NCAER. Data collected on of the delegation to local bodies made by
finances included delegation of powers to collect other states had been ignored.
taxes; implementation of SFC reports; delegation
iv) No parallel initiative has been taken for ranking
of powers to prepare plans; presence of separate
devolution amongst urban local bodies.
line items in state budgets; percentage of local
bodies whose accounts are audited; own revenue 10.99 Other suggestions made for computing a
as a percentage of expenditure and untied funds devolution index have been described in Para 10.57.
as percentage of total plan and non-plan grants. Use of these parameters requires credible data,
Data collected on functions included the number which regrettably, are presently unavailable.
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Providing a Share of the Divisible Pool to LBs local bodies immediately, this process needs to be
quickened and made predictable.
10.100 A number of State Governments have
proposed that local bodies should be provided
Use of Conditionalities
assistance directly from the divisible pool over and
above the share of State Governments. This was also 10.104 The conditionalities imposed by previous
a major recommendation in the Conference of PRIs Commissions have been detailed in paras 10.17 to
sponsored by this Commission. While a separate 10.24. These conditionalities have directed
study sponsored by us on this issue proposes that expenditure away from establishment costs and
this can indeed be done taking a broader view of towards provision of core services, and have
the Constitution, a legal opinion obtained by the focussed on setting up of data bases and
Commission finds that such a proposal is not maintenance of accounts.
consistent with the Constitution. 10.105 Such attempts have met with limited success.
10.101 The differential treatment presently Maintenance of accounts still poses challenges. It has
accorded to transfer of proceeds of tax devolution been argued that local bodies need to hire qualified
to the states and transfer of grants provided to states staff to set up and maintain data bases and accounts.
in the Union Budget reflects the different status of Further, during our field visits, local body
these two modes of assistance. The share of central representatives forcefully emphasised the need for
taxes devolved to the states does not enter the providing untied support. The use of conditionalities
Consolidated Fund of India while the grants linked to desired performance outcomes may,
therefore, need to be reviewed.
recommended by the FCs are voted. Providing local
bodies with a percentage of the divisible pool as
Accounts of Local Bodies
direct support would elevate this support to the level
of tax devolution. This does not appear to be within 10.106 As indicated in paras 10.92 to 10.94, data
the mandate of Article 280. on financial and operational performance of all local
bodies continues to be of poor quality.
10.102 However, there is considerable justification
Notwithstanding substantial progress by local
for this proposal. The proposed introduction of the
bodies in a few states on this account, the data
Goods and Services Tax (GST) will remove some
remains cross-sectionally unreliable for the
tax instruments traditionally allocated to local
determination of local body grant amongst states.
bodies. These include entertainment tax, entry tax,
The exhortations of the previous Commissions have
as well as share in stamp duty. It is, therefore, been seen as indicative rather than imperative and
important that local bodies be provided with a State Governments have been either unable or
buoyant source of revenue as an alternative to fixed unwilling to implement them. It appears that an
grants. This will also be in line with best incentive-based approach may yield better results
international practice. than an exhortation-based one, in matters relating
to maintaining a comprehensive data base as well
Delay in Sending Funds to PRIs
as an upto-date accounting system.
10.103 A number of states have delayed
10.107 The assistance given to local bodies is
transmitting funds to local bodies despite the
presently required to be booked by the State
injunction of FC-XII that interest be paid by the Governments under the following minor heads
State Governments to local bodies in case of any below the respective functional major heads:
delay. We have come across a state which did not
pay this interest, arguing that it had, on occasion, i) Minor head 191-Assistance to Municipal
provided funds in advance to local bodies. We have Corporations.
also come across states which did pay this interest. ii) Minor head 192-Assistance to Municipalities/
While the states have generally passed on funds to Municipal Councils.
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Thirteenth Finance Commission
iii) Minor head 193-Assistance to Nagar classification of transfers separately for all categories
Panchayats/Notified Area Committees or of ULBs and all tiers of PRIs, from major head to
equivalent thereof. object head, which have been depicted in the main
budget under the minor heads 191, 192 and 193; and
iv) Minor head 196–Assistance to zilla
196, 197 and 198 respectively. This supplement could
parishads/district level panchayats.
also incorporate details of funds transferred directly
v) Minor head 197–Assistance to block to the local bodies outside the State Government’s
panchayats/intermediate level panchayats. budget. The supplement should aim to provide
vi) Minor head 198–Assistance to gram details of spatial distribution of transfers–at least
panchayats. upto district level. Parallel to this, the finance
accounts should also reflect such a distinction. A
10.108 Any assistance given by the State separate statement needs to be included in the
Governments to PRIs is presently booked as a lump finance accounts showing the detailed plan- and non-
sum under the minor heads 196, 197 & 198 which plan-wise classification of transfers separately for all
appear in the budget documents as well as in the categories of ULBs and all tiers of PRIs, from major
finance accounts of the State Governments. head to object head, which have been depicted in
However, neither the budget documents nor the the finance accounts under the minor heads 191, 192
finance accounts of most State Governments and 193; and 196, 197 and 198 respectively.
depict the details relating to the expenditure
incurred by the PRIs by detailed heads and object Panchayati Raj Institutions
heads. Further, it is not possible to determine the
10.111 In its recommendation relating to formats for
corresponding expenditure incurred by the PRIs
the budget and accounts of local bodies, FC-XI had
as they do not maintain similar accounts that could
recommended that the C&AG prescribe the format in
capture these dxetails.
which local bodies should prepare their budgets and
10.109 Accurate data on the financial performance maintain their accounts. C&AG and the Ministry of
of local bodies are best obtained from accounts of Panchayati Raj have finalised a Model Panchayat
the local bodies themselves, apart from the budget Accounting System which is proposed to be introduced
documents of the State Governments and the from 1 April 2010. The accounting system uses a
respective finance accounts. This requires that all simplified cash-based system (with provision to shift
State Governments make distinct budget to accrual accounting) along with the list of codes for
provisions for local bodies, the expenditures functions, programmes and activities capturing
relating to which are reported in the finance receipts and expenditure in respect of all 29 subjects
accounts. Such an approach has been mentioned in Schedule XI of the Constitution. It is
recommended by previous Commissions as well as desirable that all states adopt an accounting
the SARC. A number of states do maintain distinct framework and codification pattern consistent with
budgetary provisions for amounts transferred by the Model Panchayat Accounting System.
them to each tier of PRIs and each category of
10.112 In addition, for proper monitoring of the
ULBs. They provide ‘object head-wise’ details in
budget allocation and consolidation of accounts of
the budget documents. Object heads like salary,
PRIs at the state level, the states will have to allot
wages and office expenses are captured under the
specific codes to each zilla parishad, block panchayat
relevant detailed heads.
and gram panchayat. Similarly, arrangements need
10.110 It is desirable that this best practice be to be put in place for consolidation of accounts of
emulated by all states. We recommend that a PRIs at the national level. Further, the eight data base
supplement to the budget documents be prepared formats prescribed by the C&AG for local bodies have
by the State Governments. This supplement should not been compiled by any state. This also requires to
show the details of plan- and non-plan-wise be done.
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Chapter 10: Local Bodies
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Thirteenth Finance Commission
Another three states are exempt from the purview state legislature. If necessary, this may need to be
of the 73rd and 74th amendments. institutionalised by introducing relevant legislation.
10.119 As per the office of the C&AG, audit by the 10.122 While such an arrangement will provide a
State Accountants General has been completed for credible assurance of the audit of accounts, an
the year 2007-08 and audit of the year 2008-09 is in independent authority for investigating
progress in those states where entrustment has taken complaints of malfeasance and administrative
place. C&AG is not undertaking certification of laxity by local body representatives is still not in
accounts, except in Karnataka. Only transaction place in most states. The recommendations of the
audit is being taken up for all the states where audit SARC referred to in Para 10.66 are, therefore,
has been entrusted. extremely relevant.
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Chapter 10: Local Bodies
amended to include the phrase ‘or earlier’ after the overly keen either to accept their recommendations
words ‘every fifth year’. or to place the Action Taken Report before the state
legislature in a timely manner. This situation
Quality of SFC Reports provides a further disincentive for SFCs to produce
good quality reports. There is, thus, a need for State
10.126 The quality of SFC reports continues to be
Governments to ensure that the recommendations
patchy. Though FC-XII had recommended that
of SFCs are implemented without delay and that
SFCs collect data in the formats suggested by it, this
the Action Taken Report is placed promptly before
advice has not been uniformly followed. The basis
the legislature.
for determination of support is not uniform across
SFCs. Further, the recommendations of the SFCs
Article 280(3)(bb) and (c)
do not follow a uniform pattern, thus detracting
from their usability. 10.130 The SARC as well as previous Commissions
have recommended amendments to Article 280(3)
10.127 This problem was also recognised by the
(bb) and (c) such that the words ‘on the basis of the
Conference on Empowering PRIs referred to in
recommendations made by the Finance
Para 10.76 which was attended by a number of
Commission of the State’ are changed to ‘after
chairmen of prior SFCs. This Commission had
taking into consideration the recommendations ….’
earlier constituted a task force to prepare a We endorse this recommendation.
template for SFC reports. This template was
discussed during the conference and finalised on Role of Other Development Authorities
the basis of the inputs received. It was then
uploaded on the Commission’s website and further 10.131 During our consultations, it was pointed
amendments made on the basis of the suggestions out that there are a number of parastatal bodies
received. The template finalised after this which operate in areas earmarked for local bodies
comprehensive consultation process is placed in by XI and XII Schedules, thus emasculating them
Annex 10.5. We recommend that SFCs consider both financially and operationally. It was proposed
that all funds relating to the subjects listed in the
this for adoption.
XI and XII Schedules, devolved either by the
10.128 The recommendations of FC-XII on Central or the State Government, be given to the
membership of the SFCs continue to be valid and local bodies instead of to agencies whose activities
merit attention. Important issues–legal, economic, intersect with theirs. It was suggested that all such
financial and administrative, as well as those parallel bodies be abolished and that funds should
relating to decentralisation–need to be examined flow directly to the local bodies through the State
and SFC members should be well equipped to meet Government.
these challenges. Article 243-I (2) of the
10.132 One major argument for such a proposal is
Constitution enables State Governments to legislate
the potential for the use of land as a financing option
on the requisite qualifications of SFC members. It
by municipalities. A study sponsored by this
is desirable that all states legislate in this matter.
Commission, which examined the position in this
Implementation of SFC Reports regard in four major cities, found that revenue from
land lease/sale by Urban Development Authorities
10.129 The experience of SFCs has not been found (UDAs) in these cities accounted for between 6 and
to be successful for a number of reasons. SFCs 390 per cent of the aggregate own revenue sources
themselves are hampered by lack of data. Limited of the four municipal bodies, between 5 and 120 per
capacity and poor ownership by State Governments cent of their total revenues, and between 35 and
compounds this problem. There is little incentive 4412 per cent of property tax revenues. We
for them to produce a comprehensive report. recognise the difficulty in making generalisations
Further, or because of these reasons, states are not based upon a study of only four cities. However, we
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Thirteenth Finance Commission
Table 10.3: Areas Where Provisions of Parts IX and IX-A do not Apply
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Chapter 10: Local Bodies
the panchayats have been extended to Schedule V 10.139 FC-X, FC-XI, and FC-XII have preferred to
areas. The tribal areas included in Schedule VI still provide grants to the scheduled areas through the
remain outside its purview. local bodies route. The view in taking such a course
of action appears to be premised on the fact that
10.136 Concern has been expressed about the
the provision regarding measures to augment the
perception that Schedule VI areas of the Constitution
consolidated funds of the states is included in
have been getting less favourable treatment as
Article 280 and not in parts IX and IX-A of the
compared to other areas of the states. The Seventh
Constitution. This course of action followed by the
SARC Report entitled ‘Capacity Building for Conflict
previous Finance Commissions may have been
Resolution’ indicates that an emerging area of
dictated by the fact that their Terms of Reference
conflict is the rising disparity between the
excluded consideration of grants-in-aid under the
autonomous councils and the local bodies
provisos to Clause(1) of Article 275.
established in pursuance of the 73rd Amendment as
the latter are being more liberally funded by SFCs. It 10.140 Another point of view goes thus: The
goes on to recommend that State Governments Finance Commission is required to recommend
initiate a system of meeting at least the establishment measures to augment the consolidated fund of a
costs of the councils from sources outside the tribal state to supplement the resources of panchayats
sub-plan and incorporate the resultant financing and municipalities on the basis of the
needs in their projections to the next Finance recommendations made by the Finance
Commission. We understand that consensus needs Commission of the state. Thus, grants-in-aid
to be built for extension of the 73rd and 74th meant for panchayats given to the states’
amendments to the Schedule VI area. We urge that consolidated funds cannot be expected to be
this be done speedily. apportioned to the ‘excluded areas’, and the
Schedule VI areas as these areas are excluded from
10.137 While the general power of sanctioning
the ambit of the recommendations of the SFCs. The
grants for rendering financial assistance is left to
argument then would be to earmark grants for
Parliament by Clause 1 of Article 275 of the
such ‘excluded areas’ under Article 275,
Constitution, specific grants are enabled through
notwithstanding the specific exclusion in the
the two provisos to the clause:
Terms of Reference.
i) The first proviso concerns payment from the
Consolidated Fund of India (without vote in Recommendations
Parliament) of sums necessary for schemes
Grants to Local Bodies
of development, for the welfare of scheduled
tribes and for raising the level of 10.141 A feature observed uniformly across states
administration of Scheduled Areas, as may is that all local bodies indicated their inability to
have been undertaken by a state with the meet the basic needs of their constituents and urged
approval of the Government of India. this Commission to increase the volume of grants
to them. They particularly cited the need to provide
ii) The second proviso concerns similar payments
core services–drinking water, sewerage, solid waste
to the state of Assam, for the development of
management, and street lights at acceptable levels
the tribal areas in that state only.
of service. They also requested support for
10.138 It has been observed that the powers conferred enhancing their operational infrastructure
by Article 275(1) are not limited or restricted, but including office buildings and skeleton staffing for
would cover all grants, whether of capital or revenue maintaining accounts and data bases.
nature, whether for general or special purpose,
10.142 The Ministry of Panchayati Raj has urged this
whether unconditional or conditional, and whether
Commission to substantially support PRIs to enable
on plan or non-plan account.
them to effectively provide basic services to their
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Thirteenth Finance Commission
constituents. Only 52 per cent of the rural population Simultaneously, local bodies should also be made
has access to basic sanitation. The Department of more accountable in the discharge of their functions.
Drinking Water has underlined the large investments Their accounts and audit must be up-to-date.
required to be made in rehabilitation and 10.144 We have examined the Constitutional
maintenance as well as for new schemes to ensure imperatives on transfers to local bodies earlier in paras
full coverage of drinking water and sanitation to the 10.100 to 10.102. Taking into account the demand of
entire rural population. The Ministry of Urban local bodies that they be allowed to benefit from the
Development highlighted the major challenges buoyancy of central taxes and the Constitutional
currently being faced by the urban sector. On the one design of supplementing the resources of panchayats
hand, the urban population of the country is and municipalities through grants-in-aid, we
projected to increase from 28 per cent of the total recommend that local bodies be transferred a
population to about 38 per cent by 2026. Urban percentage of the divisible pool of taxes (over and
growth will account for two-thirds of the projected above the share of the states), as stipulated by us, after
population increase. On the other hand, the current converting this share to grant-in-aid under Article 275.
state of supply of core services in the urban areas is The value of the grant must be commensurable at the
below norms. Only 70 per cent of urban households start of the year, since the grant would have to be
have access to piped water, only 74 per cent of urban included in the Union Budget. We, therefore,
households have access to latrines, only 23 per cent recommend that the volume of the divisible pool for
of sewage is treated, only 30 per cent of solid waste the previous year (t-1) be used as a basis for computing
generated is treated prior to disposal. In addition to the grant eligibility of local bodies for a particular year
core services, other responsibilities like roads and (t). For example, the grants-in-aid for local bodies in
citizen facilities also require investment. 2010-11 would be based on a percentage of the divisible
pool of 2009-10 (Revised Estimates). After the ‘actuals’
10.143 There is, thus, an undisputed need to bolster
of that year are determined, adjustments may be made
the finances of the rural as well as urban local bodies.
in the second tranche of the two-tranche system that
All local bodies need to be supported through a
we recommend.
predictable and buoyant source of revenue,
substantially higher than the present levels, in 10.145 Keeping these factors in mind, we
addition to their own tax revenues and other flows recommend that grants be given to local bodies as
from State and Central Governments. detailed in the Table 10.4.
* Period 2009-10 to 2013-14. Totals may not tally due to rounding off.
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Chapter 10: Local Bodies
10.146 As shown , the proposal is to award 2.28 per 10.150 The general basic grant and the general
cent of the relevant divisible pool (2009-14) as a performance grant will initially be segmented into
grant to local bodies. This is equivalent to 1.93 per rural and urban shares on the basis of their respective
cent of the 2010-15 divisible pool-the relevant populations as per the 2001 Census, with 26.82 per
period for this Commission. cent as the urban share and 73.18 per cent as the rural
share. By thus splitting the total grant provision, we
10.147 The grant will have two components–a basic
are, in effect, providing a uniform per capita
component and a performance-based component.
entitlement in both sectors of the economy. The grant
The basic grant will be equivalent to 1.50 per cent
for rural and urban local bodies will then be
of the previous year’s divisible pool. All states will
separately allocated amongst states as discussed
have access to this grant for all the five years as per
below. However, the special areas grants, both
the criteria and weights mentioned in Para 10.158.
general and performance, will be distributed as per
The performance grant–effective from 2011-12–will
Annex 10.6 without distinguishing between urban
be 0.50 per cent for the year 2011-12 and 1 per cent
and rural areas.
thereafter, upto 2014-15. Only those states which
meet the stipulations outlined in Para 10.161 will 10.151 We are conscious of the need to ensure a
have access to the performance grant. certain degree of predictability in the devolution
criteria adopted, both in terms of generally accepted
10.148 We recognise the need to specially support
criteria as well as in the need to nurture incentives
areas covered by the V and VI Schedules and the
which have been set up by previous Commissions. A
areas exempted from the purview of Part IX and IX
number of states have suggested that population,
A of the Constitution, for a number of reasons
area, income distance, revenue effort and index of
including those mentioned by SARC (Para 10.136).
decentralisation be considered as criteria, though
We therefore propose to carve out a small portion
their perceptions on the weights to be assigned to
of the basic grant and allocate it exclusively for the
each parameter have varied. We have decided to
development of these areas which we term ‘special
retain the population, area and income distance
areas’. Eligibility for the special areas grants has
criteria. Though we are strongly inclined to use the
been computed on the basis of population in these
revenue effort criteria, the available data do not
areas. An amount of Rs. 20 per capita per year has
appear credible. The reasons for not doing so are
been allocated as the ‘special area basic grant’. This
mentioned in Para 10.93. We appreciate the reasons
special area basic grant will be accessible by all the
for FC-XII devising and using an index of deprivation
eligible states for all five years. A special areas
as a criteria for devolution. However, we consider
performance grant of Rs. 10 per capita for 2011-12
and Rs. 20 per capita for the subsequent three years that using the 2001 Census figures in November
will be made available to those states which meet 2009 to compute this index would not truly reflect
the stipulations in Para 10.162. The state-wise the relative deprivation of the population in different
allocation of the aggregate special areas grant is states with respect to minimum needs like water and
provided in Annex 10.6. sanitation. The Accelerated Rural Water Supply
Programme, the Total Sanitation Campaign and the
10.149 The general basic grant and the total special Nirmal Gram Panchayat Scheme have made a
areas grant has been estimated as aggregating to significant difference to the position as determined
Rs. 57,693 crore for the five year period 2010-15. by the 2001 Census. A number of villages may also
As indicated above, Rs. 1357 crore has been have slipped from the ‘fully covered’ category for
allocated to the special areas grant. This amount water supply to ‘uncovered’ due to failure of the
represents 2.35 per cent of the basic grant for the source or breakdown of the system. We have,
local bodies. This leaves Rs. 56,335 crore as the therefore, discarded the use of this index in our
general basic grant to be divided amongst states in calculations. In its place we propose to use the
the manner specified in paras 10.150 to 10.158. aggregate percentage of scheduled castes and
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Thirteenth Finance Commission
scheduled tribes in a state as a criterion, as a proxy existing modalities for booking such expenditure and
for deprivation. However, we recognise that this weighing all alternatives, we decided that the best
criterion is more relevant in the rural areas than in approach would be to assign the negative entries
the urban areas. In the urban areas, in our view the under the non plan head a minimum value of zero.
income distance criterion dominates the caste Where a state had recovered unspent balances
criterion. We, therefore, propose to allot differential available with local bodies at the end of the year, a
weights for rural and urban areas in relation to the suitable correction was made. The modulated
criteria of percentage of SC/STs. The percentage of transfer so determined was divided by the states’
SC/STs is available separately for the rural sector in non-plan revenue expenditure for the three years
the 2001 Census data. This criterion has been given (after deducting FC-XII grants for this period) and
a weight of 10 per cent. No weight has been assigned state-wise percentages obtained. These percentages
to this parameter for ULBs. were then weighted by their respective 2001
populations to obtain the state-wise devolution
10.152 We recognise the need to incentivise states
index. The calculations are shown in Annex 10.7. We
to empower panchayats and are inclined, in principle,
allot this index a weight of 15 per cent.
to use an index of decentralisation as a parameter
for devolution. However, for the reasons mentioned 10.154 As mentioned earlier, we used the 2001
in paras 10.98 and 10.99, we are unable to do so. In Census to determine state-wise shares in grants for
its place, we propose to use an index of devolution the rural and urban populations. As far as local bodies
derived from the finance accounts for the years 2005- are concerned, population continues to be the best
06, 2006-07, and 2007-08. The amounts devolved indicator of need. We therefore depart from FC-XI
to local bodies in the finance accounts have been and FC-XII, and allocate to the population criterion
aggregated across the following heads: an enhanced weight of 50 per cent. Rural and urban
areas have also been determined on the basis of the
i) For rural local bodies under sub heads 196,
2001 Census. We allot a weight of 10 per cent to area
197, and 198 under applicable major heads
and follow the FC-XII in computing the income
in the non-plan category.
distance criterion. For the rural sector, we have used
ii) For urban local bodies under the sub heads the average per capita comparable Gross State
191, 192, and 193 under applicable major Domestic Product (GSDP) from the primary sector,
heads in the non-plan category. derived on the basis of comparable GSDP figures
supplied by the Central Statistical Organization (CSO)
iii) For other assistance to all local bodies under
for the years 2004-05, 2005-06 and 2006-07. The
the head 3604 in the non-plan category.
corresponding mid year state-wise population figures
10.153 From the above aggregated amount FC-XII for these years were obtained from the report of the
grants released to local bodies for the same period Technical Group on Population Projections, chaired
were deducted. Since there is a possibility that FC- by the Registrar General of India and published by
XII grants might have been received in a year the National Commission on Population in May 2006.
subsequent to the year of recording of the respective While measuring the per capita income distance of
devolutions, we used figures summed up over a each state from the maximum, outliers were
three-year period. The figure so obtained was the eliminated as their use tended to suppress the relative
amount devolved to local bodies from the State income distance of the weaker states. Thus, income
Governments’ own resources. Even so, this figure was distance was measured from the state with the second
negative for nine states. One reason could be that highest sectoral per capita income in case of the rural
the state may not have devolved all FC-XII grants to sector (Punjab). To ensure inclusion, one quarter of a
the local bodies. Alternatively, it could have devolved standard deviation from the average per capita
them under the plan head. Also, it may not have sectoral income of all states was added to the per capita
recorded this expenditure under the sub-heads sectoral income of the benchmark state. This
mentioned above. Having carefully considered the determined the target per capita sectoral income.
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Chapter 10: Local Bodies
States with per capita sectoral income equal to or State Governments were required by FC-XII to
higher than the benchmark state were awarded the submit the following details prior to the release of
same distance as the benchmark state, i.e., one quarter every instalment:
of the standard deviation indicated above. For all other i) Details of allocation of funds to local bodies
states, the income distance was determined as the for the forthcoming instalment.
difference between the target per capita sectoral
ii) Details of release of funds to local bodies at all
income and the states’ own per capita sectoral income.
levels at all tiers for the previous instalment.
These income distances were then weighted by the
iii) Percentage of grants spent on solid waste
rural populations (2001) of the respective states to
management by ULBs and on water supply
arrive at the share of the panchayats. A similar
and sanitation by PRIs.
approach was followed in case of urban local bodies
as well. We have used the average per capita GSDP iv) Details of recurring costs recoverable by
excluding the primary sector on the basis of the GSDP PRIs on water supply schemes.
data supplied by the CSO. The population projections 10.157 FC-XII had stipulated that all local body
made by the technical group mentioned above were grants drawn by State Governments should be
used. The distance of each state was measured from immediately transferred to local bodies and interest
the state with the third highest average per capita would be payable if the delay in doing so exceeded 15
GSDP in the non primary sector (Goa) plus one days. Since transfer of releases by State Governments
quarter standard deviation from the average per capita to local bodies was effectively a criterion for release of
sectoral income. The distances were then weighted by the subsequent instalment, the releases of the FC-XII
the urban population (2001) of the concerned state to
grants would reflect the commitment of State
arrive at its share. The data used, along with these
Governments to promptly providing the
computations, are placed in annexes 10.8 to 10.10.
documentation to GoI neccessary for such releases,
Income distance is a more significant criterion in the
and thus, display their commitment to the local bodies.
urban sector when compared to the rural sector. We
FC-XII releases to State Governments from 2005-06
therefore allot this criterion a weight of 10 per cent for
onwards for local body grants are placed in Annex
the rural sector and 20 per cent for the urban sector.
10.11a&b. A total of nine tranches of FC-XII grants
10.155 As pointed out in Para 10.17, of the eligible were eligible for release as on November 2009. The
allocations under the FC-XII award; 7.42 per cent of percentage eligibility of each state has been worked
the allocation in the case of for PRIs and 10.57 per out on the basis of the actual number of tranches
cent in the case of ULBs had not been drawn as on 6 released. These computations are also shown in Annex
November 2009. The percentage of undrawn amounts 10.11 a&b. We are confident that the states will make
was significant during earlier periods as well. This has all possible efforts to draw down all the grants made
led to an anomalous situation where grants by this Commission in a timely fashion.
recommended by the FC-XI are being drawn-down
10.158 The summary of criteria and weights
during the period of FC-XII. Rs. 319.56 crore of grants
allotted is as shown in Table 10.5.
approved by the FC-XI were released in February
2007. Such a situation is not desirable and we propose Table 10.5: Weights Allotted to Criteria for
using the level of draw down of FC-XII funds in the Grants to Local Bodies
past as a criterion for inter-state distribution of grants. Criterion Weights Allotted (%)
We include this to signal the importance of timely PRIs ULBs
releases to local bodies. We, however, propose to allot
Population 50 50
to it a weight of only 5 per cent. For computing this Area 10 10
index, we confine ourselves to an examination of the Distance from highest per capita
grants awarded by FC-XII and the releases made to sectoral income 10 20
Index of devolution 15 15
State Governments thereafter.
SC/STs proportion in the population 10
10.156 Local body grants are released in two FC local body grants utilisation index 5 5
Total 100 100
instalments every year–in January and in July.
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Thirteenth Finance Commission
10.159 Based upon the above criteria and the details of the distribution of the concerned
weights allotted, the state-wise percentage share of instalment to urban and rural local bodies and is
the basic grant to be transferred to PRIs is given in not required for the first instalment in 2010-11.
Annex 10.12. The state-wise percentage share of
10.161 For the years 2011-2012, 2012-13, 2013-14
transfers to urban local bodies is given in Annex
and 2014-15, a State Government will be eligible to
10.13. The state-wise composite percentage has
draw down its share of the general performance
been worked out in Annex 10.14. The same shares
grant shown in Annex 10.15b only if it complies with
apply to the performance grant although access to
the following nine conditions. These conditions
that grant is subject to the conditionalities listed in
must be met by the end of a fiscal year (31 March)
Para 10.161. The projected share of each state has
for the state to be eligible to draw down its
been worked out in Annex 10.15 as under: performance grant for the succeeding fiscal year.
i) The state-wise general basic grant is detailed i) The State Government must put in place a
in Annex 10.15a. supplement to the budget documents for
ii) The state-wise general performance grant is local bodies (separately for PRIs and ULBs)
detailed in Annex 10.15b. furnishing the details (other than those
relating to Finance Accounts) indicated in
iii) The state-wise special areas basic grant is
Para 10.110.They should require the PRIs to
detailed in Annex 10.15c.
maintain accounts as specified in paras
iv) The state-wise special areas performance 10.111 and 10.112. They should also require
grant is detailed in Annex 10.15d. urban local bodies to maintain accounts as
provided in Para 10.116. To demonstrate
The computations in Annex 10.15b and 10.15d
compliance with this condition, a State
assume that all states will become eligible to draw
Government should: (a) submit the relevant
down their general performance grant and special
supplement to the budget documents and (b)
areas performance grant respectively at the earliest.
certify that the accounting systems as
These annexes assume fulfilment of all
recommended have been introduced in all
conditionalities by all states and to that extent they
rural and urban local bodies.
are tentative and contingent upon the performance
of the states. If any state is unable to draw down ii) The State Government must put in place an
the performance component of the grants allocated audit system for all local bodies (all
to it, its share will be distributed in the manner categories of ULBs and all tiers of PRIs) as
specified in paras 10.163 and 10.164 and Annex indicated in Para 10.121 above. The C&AG
10.15b&d will stand amended to that extent. must be given TG&S over the audit of all the
local bodies in a state at every tier/category
Incentive Framework for General and his Annual Technical Inspection Report
Performance Grant as well as the Annual Report of the Director
of Local Fund Audit must be placed before
10.160 This distribution arrangement outlined
the state legislature. Certification from the
above will be subject to the following conditions.
C&AG will demonstrate compliance with this
For all five years between 2010- 11 and 2014-15, all
condition.
states will be eligible to draw down their share of
the general basic grant shown in Annex 10.15a. This iii) The State Government must put in place a
will be done in two instalments, latest by 1 July and system of independent local body
1 January of each year, subject to submission of a ombudsmen who will look into complaints
utilisation certificate (UC) for the previous of corruption and maladministration against
instalment drawn. No other documentation need the functionaries of local bodies, both elected
be stipulated. This utilisation certificate will provide members and officials, and recommend
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Chapter 10: Local Bodies
suitable action. This system should be made all municipalities and municipal
applicable to all elected functionaries and corporations in the state to put in place an
officials in all municipal corporations, independent and transparent procedure for
municipalities and zilla parishads at least. assessing property tax. The Board (a) shall,
The passage of relevant legislation and its or cause to, enumerate all properties within
notification will demonstrate compliance the jurisdiction of the municpalities and
with this condition. In the event that all or a corporations; (b) shall review the present
class of the functionaries mentioned above property tax system and make suggestions
fall under the jurisdiction of the Lok Ayukta for a suitable basis for assessment and
of the state, we leave it to the state to decide valuation of properties; and (c) shall make
whether to continue with these recommendations on modalities for periodic
arrangements or to shift the functionaries to revisions. The findings, suggestions and
the jurisdiction of the ombudsman. Self- recommen-dations of the board will be
certification by State Governments will communicated to the respective urban local
demonstrate compliance with this condition. bodies for necessary action. The exact model
iv) The State Governments must put in place a to be adopted is left to the respective state.
system to electronically transfer local body The board should be staffed and equipped
grants provided by this Commission to the in such a manner as to be able to make
respective local bodies within five days of recommendations relating to at least 25 per
their receipt from the Central Government. cent of the aggregate number of estimated
Wherever this is not possible due to lack of properties across all municipal corporations
easily accessible banking infrastructure, the and municipalities in the state by 31 March
State Governments must put in place 2015. The board should prepare a work plan
alternative channels of transmission such indicating how it proposes to achieve this
that funds are transferred within ten days of coverage target and the human and financial
their receipt. Self-certification by the State resources it proposes to deploy. Passage of
Governments with a description of the the relevant legislation or issue of the
arrangements in place will demonstrate necessary executive instructions by the State
compliance with this condition. Government for creation of the Property Tax
Board as well as publication of the work plan
v) The State Governments must prescribe by the Board in the State Government gazette
through an Act the qualifications of persons will demonstrate compliance with this
eligible for appointment as members of the condition.
SFC consistent with Article 243I (2) of the
Constitution. The passage of relevant viii) Lack of resources often results in local bodies
legislation and its notification will diluting the quality of services provided by
demonstrate compliance with this condition. them. State Governments must gradually put
in place standards for delivery of all essential
vi) All local bodies should be fully enabled to
services provided by local bodies. For a start,
levy property tax (including tax for all types
State Governments must notify or cause all
of residential and commercial properties)
the municipal corporations and munici-
and any hindrances in this regard must be
palities to notify by the end of a fiscal year
removed. Self-certification by the State
(31 March) the service standards for four
Government will demonstrate compliance
service sectors-water supply, sewerage,
with this condition.
storm water drainage, and solid waste
vii) State Governments must put in place a state management proposed to be achieved by
level Property Tax Board, which will assist them by the end of the succeeding fiscal year.
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Thirteenth Finance Commission
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Chapter 10: Local Bodies
in Para 10.160. Its share of the performance grant performing states for that particular year will then
as indicated in Annex 10.15b will be forfeited. The be distributed as under:
forfeited performance grant for the state will be
i) Fifty per cent of the amount will be
divided into PRI & ULB components in the
distributed amongst all the eligible states
proportions indicated against that state in Annex
(both performing and non-performing
10.15b. It is possible that more than one state may
states) as listed in Annex 10.6.
not become eligible to draw down their performance
grants. In such a case, the PRI & ULB components ii) The balance 50 per cent of the amount will
of the general performance grant forfeited will be be distributed only amongst the performing
aggregated separately across all such non- states from those listed in Annex 10.6 which
performing states. The total amount of PRI & ULB have complied with the stipulations in Para
performance grants forfeited by the non-performing 10.162 in the ratio of their entitlements
states for that particular year will then be specified in the same annex. If no state is
distributed as under: eligible, this amount shall not be disbursed.
i) Fifty per cent of the PRI amount so forfeited 10.165 If a state is unable to meet the stipulations
will be divided amongst all the states (both in Para 10.161 or Para 10.162, as the case may be,
performing and non-performing) by the by 31 March 2011, but meets the above stipulations
shares indicated in Annexe 10.12 and 50 per by 31 March of any succeeding fiscal year, it will be
cent of the ULB amount forfeited will be entitled to its share of performance grant only
distributed by the share indicated in Annexe prospectively from the fiscal year after the fiscal year
10.13. during which it demonstrates compliance with the
conditions.
ii) The remaining 50 per cent of the forfeited
PRI & ULB performance grants will be 10.166 We recognise the criticality of supporting
distributed only amongst the performing all local bodies through adequate levels of
states which have complied with the devolution. They are increasingly being called
stipulations in Para 10.161, in the ratio of upon to meet the challenges of environmental
their entitlements specified in annexes 10.12 degradation, population pressure, exhaustion of
and 10.13 respectively. If no state is eligible, resources and revenue constraints. We have,
this amount shall not be disbursed. therefore, provided for a broad level of
unconditional support for both urban and rural
10.164 Similarly, from the year 2011-12 every state local bodies for the entire five-year period
listed in Annex 10.6 will be eligible to draw the share governed by our recommen-dations. However, all
of the basic special areas grant and its share of the these flows need to be consistently accounted for
special areas performance grant if it meets the and audited within a uniform framework across
conditionalities stipulated in paras 10.160 and the country. Local bodies also need to be
10.162. In case, a state does not meet these adequately empowered through appropriate
conditionalities, its entitlement will be restricted to transfers in a timely manner. It is for addressing
only the basic special area grant as indicated in Annex these issues that we have put in place a regime of
10.15c subject to its submitting UCs as specified in conditionality which acts as a gateway to
Para 10.160. Its share of the special area performance performance grants. The conditions imposed are
grant will be forfeited. It is possible that more than prudential rather than output-based; they are
one state of those listed in Annex 10.6 may not be concerned with processes rather than being
eligible to draw down the special areas performance expenditure-directed and they are aimed at putting
grant. The special areas performance grant so in place a credible framework for analyzing the
forfeited will be aggregated across all non-performing performance of all local bodies as well as making
states. The total amount forfeited by these non- them responsible for their service levels. These
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Thirteenth Finance Commission
conditions have been derived from our schemes like JNNURM from the other areas into
consultation process. We have attempted to put the cantonment areas.
in place conditionalities which will increase
responsibility, enhance transparency and augment Areas where Parts IX and IX-A
accountability of local bodies to the public. These do not Apply
steps, which are consistent with the subsidiarity 10.170 The terms of reference of this Commission
principle, will, in our view, improve the quality of do not include the provisos to Article 275(1) relating
expenditures of local bodies and result in better to grants to the Schedule VI areas. This Commission
outputs and outcomes. finds no reason to depart from the course of action
10.167 The substantial increase in the volume of followed by the previous Commissions and
transfers to local bodies envisaged by this recommends that the states may appropriately
Commission requires that State Governments allocate a portion of their share of the general basic
strengthen their audit framework. While the C&AG grant and general performance grant, to the
will provide technical guidance and supervision, the specials areas described in para 10.148, in
major portion of the work will have to be undertaken proportion to the population of these areas. This
by the local fund audit department. We recommend will also promote uniformity of approach across
that all State Governments strengthen their local all states in the country in the matter of devolution
fund audit departments appropriately through both to local bodies. This allocation will be in addition
capacity building as well as augmentation of to the special area basic grant and special area
personnel. performance grant recommended by us in Para
10.148. We are confident that these steps will lead
Role of Other Development Authorities to national policies like gender representation being
integrated into the working of the agencies
10.168 Ideally, development authorities should be
functioning in these areas. We understand that
dissolved and their functions taken over by the local
proposals for improving the functioning of the ADCs
bodies in whose jurisdiction they operate. As
based upon the report of an Expert Committee are
pointed out in Para 10.132, one of the reform
under consideration of Government of India. We
measures mandated under JNNURM is ‘assigning
recommend that this issue be addressed promptly.
or associating elected ULBs with city planning
functions and transferring all special delivery civic
Revamping Fire and Emergency Services
services in urban areas to ULBs over a period of
seven years’. We urge speedy implementation of this 10.171 The National Disaster Management
reform measure. In the interim, we recommend that Authority (NDMA) has drawn the Commission’s
these bodies share a percentage of their income attention to the dismal state of fire services in the
(including income from land sales) with local country. NDMA has estimated the deficiency of the
bodies. services in the country as under:
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Chapter 10: Local Bodies
an important area, we are not imposing an deemed own revenue collection from transfer
expenditure conditionality on local bodies in view entitlements of local bodies, or through a system of
of our approach to conditionality outlined in Para matching grants. We have not imposed any
10.166. We recommend that a portion of the grants stipulation that State Governments maintain their
provided by us to the urban local bodies be spent present level of transfers such that FC transfers
on revamping of the fire services within their become an additionality. We believe that funds,
respective jurisdictions. These bodies could provide functions and functionaries are interdependent.
financial support to the State Fire Services This virtuous circle will get enlarged with increased
Department towards this objective. In this process, financial support to local bodies and enhanced
they could draw upon the expertise of state agencies devolution of functions and more functionaries will
and the National Disaster Management Agency, as follow. We trust that these issues will be examined
required. carefully by the respective State Finance
Commissions and that they will make appropriate
Strengthening the Local recommendations.
Body Framework
10.174 Given the rapid growth in urban population
10.173 Though our recommendations provide and the need to improve urban infrastructure, ULBs
enhanced support to local bodies, we recognise that need to look for market-based financing to provide
there is no substitute for local bodies raising their additional funds for infrastructure investments.
own tax and non-tax revenues and for State Ahmedabad Municipal Corporation was the first
Governments augmenting their tax assignment and ULB to access the capital markets in January 1998.
transfers to them. Local bodies must be encouraged Since then, ULBs have raised funds through both
to fully exploit those taxation powers which have taxable and tax-free municipal bonds to the tune of
been assigned to them by their respective State Rs. 1200 crore. Several of these municipal bonds
Governments. They should be in a position, not only have been issued without State Government
to fully exploit sources like property tax and guarantees. In recent years, the Tamil Nadu Urban
profession tax, but also to recover at least Development Fund and the Greater Bengaluru
maintenance costs for services like water supply, Water Supply and Sewerage Project have raised
solid waste management and sewerage. Where funds through the pooled financing arrangements,
construction of a road has led to tangible which allows local bodies to pool their resources and
commercial benefits being provided, a suitable user jointly access the capital market. Although the
charge could be considered. The issue of collection municipal bond market has been limited so far, we
of user charges from roads is elaborated in a expect that more and more ULBs will, in future, be
subsequent chapter. We recognise that local bodies able to access market-based financing or urban
should be incentivised for such efforts. This, in our infrastructure, using the pooled finance model.
view, can best be done if own revenue of local bodies However, proper accounting and audit mechanisms
is used as one parameter for devolution. and adequate transparency would be critical for the
Unfortunately, due to data frailties mentioned success of the municipal bond issues. Hence our
earlier, we were unable to do so. We have, however,
emphasis on the quality of accounting and auditing
through the use of conditionalities, attempted to
processes as well as data on all aspects of the
ensure that all stakeholders including the Finance
functioning of ULBs.
Commissions in future will have access to
comparable and audited data of local body revenues 10.175 We recommend that the system of
across all the states in the country. The State notification of minimum levels of service described
Governments, in turn, can incentivise own revenue in Para 10.161(viii) and stipulated only for municipal
collection by local bodies through a variety of corporations and municipalities would be gradually
methods, such as mandating some or all local taxes extended in future to all local bodies, both urban
as obligatory at non-zero rates of levy; by deducting and rural.
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Thirteenth Finance Commission
10.176 We would urge State Governments to issue executive instructions that all their respective
consider gradually putting in place the ombudsman departments pay appropriate service charges to the
system to cover all local body functionaries local bodies. We are of the view that user charges levied
including gram panchayats, block panchayats and on Central Government properties should not exceed
nagar panchayats at the earliest. the charges levied on similarly placed State
Government properties, and where no charges are
Changes to the Finance Accounts collected by the local bodies in respect of State
Government properties, Central Government
10.177 To buttress the accounting system
properties should be equally exempt.
stipulated in Para 162(i) and (ii), we recommend
that the finance accounts should include a separate
Sharing of Mining Royalties
statement indicating head-wise details of actual
expenditures for both PRIs and ULBs. under the 10.179 In our discussions with representatives of
same heads as used in the budget. Details are local bodies they asked that mining royalties received
provided in Para 10.110. We recommend that these by the states should either be assigned to the local
changes be brought into finance accounts with effect bodies or shared with them. During field visits in the
from 31 March 2012. states we witnessed significant environmental
degradation affecting the lives of people in the mining
Other Measures to Strengthen regions. There is a feeling that while natural resources
Local Bodies are extracted from resource-rich areas, the local
population does not benefit from the exploitation of
Payment of Service Charges these resources. They, however, have to bear the
negative externalities. We recommend that State
10.178 Article 285 (1) of the Constitution exempts
Governments share a portion of their income from
all properties of the Central Government from tax
royalties with those local bodies from whose
imposed by local bodies in the states. However, the
jurisdiction such income originates.
Central Government, as early as May 1954, recognised
the need to make payment for the unallocable civic
Setting up SFC-like Bodies in Areas not
services provided by the local bodies. It was noted that
Covered by Part IX
while metered services like electricity and water could
be paid for, based upon consumption, there was need 10.180 We endorse the recommendation of the
to reimburse local bodies for unallocable services like Expert Committee on ‘Planning for the Sixth
street lighting and roads which are normally funded Schedule Areas’ set up by the Ministry of Panchayati
through the property tax route. The Central Raj relating to setting up of bodies similar to the SFC
Government reiterated these instructions in 1967, in states which are not covered by Part IX of the
1976, and 1986. FC-XI had recommended that all Constitution, and are thus, not required to set up
government properties of the Centre as well as the SFCs. As recommended by them, the terms of
states should be subject to levy of user charges which reference of these SFC-like bodies may be patterned
should be regulated by suitable legislations. There has on the provisions of Article 243I of the Constitution.
been little progress in this area over the last ten years. The Union Government has to take the necessary
A common refrain during our state visits has been the steps in this regard.
need for municipalities to be compensated for the
Summary of Recommendations
unallocable civic services provided by them. We
endorse the recommendation of the FC-XI that 10.181 Article 280 (3) (bb) & (c) of the
payment of service charges by Central and State Constitution should be amended such that the
Governments should be regulated by suitable words ‘on the basis of the recommendations of the
legislation. This may take time. We urge both the Finance Commission of the State’ are changed to
Government of India and the State Governments to ‘after taking into consideration the
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Chapter 10: Local Bodies
recommendations of the Finance Commission of expenditures under the same heads as used in the
the State’ (Para 10.130). budget for both PRIs and ULBs. We recommend
that these changes be brought into effect from 31
10.182 Article 243-I of the Constitution should be
March 2012 (Para 10.177).
amended to include the phrase ‘or earlier’ after the
words ‘every fifth year’ (Para 10.125). 10.189 The Government of India and the State
Governments should issue executive instructions that
10.183 The quantum of local body grants may be
all their respective departments pay appropriate service
provided as per Table 10.4. The general basic grant
charges to local bodies (Para 10.178).
as well as the special areas basic grant be allocated
amongst states as specified. The state-wise eligibility 10.190 Given the increasing income of State
for these grants is placed in annexes 10.15a and Governments from royalties, they should share a
10.15c. (Para 10.159) portion of this income with those local bodies in
whose jurisdiction such income arises (Para 10.179).
10.184 State Governments will be eligible for the
general performance grant and the special areas 10.191 State Governments should ensure that the
performance grant only if they comply with the recommendations of SFCs are implemented without
stipulations in paras 10.161 and 10.162 respectively. delay and that the Action Taken Report is promptly
These grants will be disbursed in the manner placed before the legislature (Para 10.129).
specified in paras 10.163 and 10.164. The state wise
10.192 SFCs could consider adopting the template
eligibility for these grants is placed in annexes
suggested at Annex 10.5 as the basis for their reports
10.15b and 10.15d.
(Para 10.127).
10.185 States may appropriately allocate a portion
10.193 We recommend setting up of bodies similar
of their share of the general basic grant and general
to the SFC in states which are not covered by Part
performance grant, to the ‘excluded areas’ in
IX of the Constitution (Para 10.180).
proportion to the population of these areas. This
allocation will be in addition to the special area basic 10.194 Local bodies should consider implementing
grant and special area performance grant the best identified practices (Para 10.79).
recommended by us (Para 10.170). 10.195 A portion of the grants provided by us to
10.186 State Governments should appropriately urban local bodies may be used to revamp the fire
strengthen their local fund audit departments services within their jurisdiction (Para 10.172).
through capacity building as well as personnel 10.196 Local bodies should be associated with city
augmentation (Para 10.167). planning functions wherever other development
10.187 The State Governments should incentivise authorities are mandated this function. These
authorities should also share their revenues with
revenue collection by local bodies through methods
local bodies (Para 10.168).
such as mandating some or all local taxes as
obligatory at non-zero rates of levy; by deducting 10.197 The development plans for civilian areas
deemed own revenue collection from transfer within the cantonment areas (excluding areas under
the active control of the forces) may be brought
entitlements of local bodies or through a system of
before the district planning committees (Para
matching grants (Para 10.173).
10.169).
10.188 To buttress the accounting system, the 10.198 State Governments should lay down
finance accounts should include a separate guidelines for the constitution of nagar panchayats
statement indicating head-wise details of actual (Para 10.133).
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CHAPTER 11
Disaster Relief
Terms of Reference with the need for making some provisions to meet
this type of expenditure’. FC-II initiated the ‘margin
11.1 Para 8 of the Terms of Reference (ToR)
money scheme’ (see Box 11.1), which envisaged
requires us to ‘…review the present arrangements
setting apart specific amounts by states in order to
as regards financing of disaster management with
meet the expenditure on relief measures. FC-VI was
reference to the National Calamity Contingency
the first to be given a formal term of reference
Fund and the Calamity Relief Fund and the funds
relating to the financing of relief expenditure. It
envisaged in the Disaster Management Act, 2005
stated: ‘The Commission may review the policy and
(53 of 2005).’
arrangement in regard to the financing of relief
Approach of Previous expenditure by the States affected by natural
Finance Commissions calamities and examine inter-alia the feasibility of
establishing a national fund to which the Central
11.2 In India, the financing of disaster relief is and State Governments may contribute a
an important aspect of federal fiscal relations. percentage of their revenue receipts.’
There are significant variations in the disaster
proneness profiles of different states and wide 11.4 Subsequent Commissions have also had
regional disparities in terms of levels of economic similar provisions in their terms of reference.
development. This implies that the coping However, none of the Commissions upto FC-VIII
capacity of a majority of the states to deal with felt any neccesity to change the system put in place
disasters on their own is inadequate. This is by FC-II and adopted the same approach.
compounded by the fact that the poorer states are 11.5 FC-IX examined the then existing scheme of
often the most disaster prone. The financing of margin money and acknowledged the need for
disaster relief has, as a result, come to be firmly replacing the ‘existing arrangements of financing
accepted as a joint endeavour of the Central and relief expenditure involving the provision of margin
State Governments. Finance Commissions, money, preparation of States’ memoranda, visits of
therefore, have considered it appropriate to central teams, etc. by a scheme which is qualitatively
comment on the subject even before this issue was different in the sense that generous funds are placed
formally included in their remit. at the disposal of the states and they are expected
11.3 Although the term ‘financing of relief to look after themselves in almost all situations’.
expenditure’ first found place in the ToR of FC-VI, FC-IX recommended the establishment of a
Commissions from FC-II onwards have commented Calamity Relief Fund (CRF) for each state, the size
on this subject. FC-II assessed the need to finance of which was decided on the basis of the average of
expenditure on relief as it was ‘struck by the the actual ceiling of expenditure approved for a state
dislocation caused to the finances of many states over a 10-year period ending 1988-89; 75 per cent
by unforeseen expenditure on calamities like of the fund was to be contributed by the Centre and
famine, drought and floods’ and was ‘impressed 25 per cent by the states. The ToR of FC-IX also
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Chapter 11: Disaster Relief
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Thirteenth Finance Commission
expenditure on relief during 2010-15 on the basis coping capacities of the states’ CRFs. While the total
of projection of occurrences, and review of plan amount of assistance for the CRFs is decided by
schemes on mitigation undertaken by different Finance Commissions on the revealed needs of
ministries and departments at the Centre and in the individual states, the NCCF has a dedicated source
states. The second study was commissioned with of funding through a special duty on selected items.
the objective of examining the current financing
arrangements in the light of the Disaster Calamity Relief Funds
Management Act (DM Act), effectiveness of the 11.11 The Calamity Relief Funds, as in operation
NCCF, role of the Finance Commission in financing today, are broadly based on the recommendation
relief, impact of ongoing plan schemes on relief and of FC-IX. They are used to meet the expenditure
mitigation requirements and the principles of for providing immediate relief to victims of
allocation under the CRF. cyclone, drought, earthquake, fire, flood, tsunami,
hailstorm, landslide, avalanche, cloud burst and
Existing System pest attack. The essential features of the CRFs are
11.10 The existing system of financing relief as follows:
expenditure, thus, mainly revolves around the CRFs i) The fund is maintained in the public account
maintained at the state level and the NCCF at the of the state.
Central level. Both these funds target immediate
ii) Seventy-five per cent of the fund is financed
relief measures and exclude measures for mitigation
by the Centre and 25 per cent by the
or post-calamity reconstruction. The CRF is a
respective states.
resource available to the states to meet the expenses
of relief operations for a range of specified calamities. iii) The Centre’s share is paid in two instalments,
The NCCF is a national fund to provide assistanace the second instalment to be released only
to states for calamities of rare severity, beyond the after receipt of the Annual Report on Natural
The accounting system for transactions relating to the Calamity Relief Fund is prescribed by the Central Government
as under:
1. The Fund: The Calamity Relief Fund is maintained in the public account under the interest bearing deposit
8235 – General and Other Reserve Funds – 111 Calamity Relief Fund.
2. Receipt and Transfer to the Fund: The grant received from the Central Government is shown as a revenue
receipt of the state under 1601-01-101 and the Centre’s share (75%), along with the state’s share (25%) is
shown as a transfer to the CRF as a revenue expenditure of the state under 2245 – Relief on Account of
Natural Calamities, – 05 Calamity Relief Fund, – 101 Transfer to Calamity Relief Fund. The CRF under the
public account is credited with an equivalent amount.
3. Expenditure on Relief: The actual expenditure on relief work is booked under the respective heads within
2245 (01 for drought, 02 for floods, cyclones, etc., 05 for Calamity Relief Fund, and 80 for others). Out of this
expenditure, the amount that needs to be charged to the CRF is shown as a negative entry under 2245-05-901
– Deduct amount met from CRF. The CRF in the public account is debited by this amount.
4. Investment and Return on the Investment: From time to time, the SLC shall give instructions to the
RBI or a bank designated by them, to invest the amounts in instruments prescribed by the Central Government
in this regard. The amount invested shall be shown under 8235-112 – Calamity Relief Fund – Investment
Account. The returns on these investments shall be credited to the government’s account.
5. Liquidation and Maturity: The instruments shall be liquidated and the proceeds credited to the Calamity
Relief Fund either on maturity or on the instructions of the SLC. In case the SLC so instructs, the amounts can
also be reinvested on maturity.
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Calamities giving the details of expenditure Table 11.1 : Releases from NCCF
incurred on relief. (Rs. Crore)
iv) The fund is administered by a State Level States 2005- 2006- 2007- 2008- Total
06 07 08 09
Committee (SLC) headed by the Chief
Andhra Pradesh 100 203 38 30 371
Secretary of the state.
Arunachal Pradesh 68 44 26 138
v) Unspent balances in the fund are to be Assam 300 300
invested from time to time, and the interest Bihar 1000 1000
Gujarat 304 546 850
earned accrued to the fund. Himachal Pradesh 113 25 25 40 203
vi) The Ministry of Home Affairs is the nodal Jammu & Kashmir 310 14 324
Karnataka 359 385 69 189 1002
ministry for overseeing the relief operations
Kerala 18 51 9 78
for all natural calamities, other than drought, Madhya Pradesh 31 31
hailstorm and pest attack, for which the Maharashtra 657 590 169 1416
Department of Agriculture and Cooperation Manipur 5 5
Mizoram 9 50 59
is the nodal department.
Nagaland 1 1
vii) The unspent balances in the CRFs at the end Orissa 25 99 124
Rajasthan 100 0 100
of FC-XII award period can be used to finance
Sikkim 5 8 13
the state plans if FC-XIII recommends the Tamil Nadu 1132 523 1655
discontinuation of the scheme. Uttarakhand 7 7
11.13 The National Calamity Contingency Fund is iv) The assistance from the NCCF is only for
operated under the broad framework laid down by immediate relief and rehabilitation and not
FC-XI. It has a core corpus of Rs. 500 crore and is for any reconstruction of assets or
replenished through the National Calamity restoration of damaged infrastructure.
Contingent Duty imposed on cigarettes, pan masala, 11.14 Over the period 2005-09, the Central
beedis, other tobacco products and cellular phones. Government has released Rs. 7677 crore to states for
Its other features are: various calamities. The details are shown in Table 11.1.
i) It is maintained in the public account of the
Additional Central Assistance
Government of India.
11.15 In order to finance post-disaster
ii) It is administered by a high level committee
reconstruction which is not covered under the
comprising the Agriculture Minister, Home
NCCF, Additional Central Assistance (ACA) has
Minister, Finance Minister, and the Deputy
been given to states in recent years, particularly for
Chairman of the Planning Commission.
the Gujarat earthquake of 2001, the Indian Ocean
iii) The claim on the NCCF is made through a tsunami of 2004, the Kashmir earthquake of 2005
memorandum submitted by the State and the Kosi floods of 2008 in Bihar. In the year
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2008-09 Rs. 645 crore has been released to 10 states Act has thrown up various new issues that require
under ACA for long term reconstruction of assets, this Commission’s consideration.
including Rs. 180 crore to Arunachal Pradesh,
Rs. 98 crore to Gujarat, Rs. 92 crore to Himachal Disasters
Pradesh, Rs. 73 crore to Andhra Pradesh and 11.20 To date, Commissions have not used the
Rs. 65 crore to Tamil Nadu. term ‘disaster’ but have mostly referred to ‘natural
calamities’. FC-XII felt that although their terms of
Convergence with Centrally
reference included the term, ‘disaster’, it was not
Sponsered Schemes
feasible to expand the scope of their consideration
11.16 Various employment generation schemes, beyond the existing list of natural calamities, except
especially those such as the National Rural for some additions to cover a few more events.
Employment Guarantee Scheme (NREGS) assure FC-XII recommended that other disasters including
financial relief to needy families in drought-affected chemical and industrial, as also air/railway
areas. They can be easily integrated with relief accidents, may continue to be taken care of by the
programmes to increase the availability of funds for respective ministries.
relief expenditure. 11.21 While previous Finance Commissions have
11.17 Another scheme that has been effectively taken such a view, the DM Act provides a far wider
dovetailed with calamity relief is the Indira Awas definition of disaster as ‘a catastrophe, mishap,
Yojana (IAY), which has accomplished useful relief calamity or grave occurrence in any area, arising from
work in terms of providing housing to the affected natural or man-made causes, or by accident or
families. Ten per cent of the annual allocation under negligence which results in substantial loss of life or
IAY is earmarked for this purpose. Similar allocation human suffering or damage to, and destruction of
(5 per cent) is also made under the Accelerated Rural property, or damage to, or degradation of
Water Supply Programme (ARWSP). environment, and is of such a nature or magnitude
as to be beyond the coping capacity of the community
Overall Disaster Management of the affected area’.
11.18 Disaster management in our country has had 11.22 Although the DM Act uses terms like
a commendable record with efficient convergence ‘substantial loss of life, or human suffering’,
of human and financial resources. Projects such as ‘damage to and destruction of property’ and ‘nature
management of tsunami relief, relief for the or magnitude as to be beyond the coping capacity
Jammu & Kashmir earthquake and relief to the of the community of the affected area’, it does not
flood-affected areas of Kosi in the past four to five quantify these terms.
years have underscored this fact. 11.23 Even in the existing system, Finance
Commissions have merely drawn up the ‘eligible list’
Disaster Management Act, 2005 of natural calamities while both the modus
11.19 The Government of India, with a view to operandi of assessment and the norms of relief have
providing for the effective management of disasters been decided by the Central Government separately.
and related matters, enacted the Disaster
Management Act, 2005. All its provisions have been Administrative Mechanism
notified excepting those relating to sections 46 & 11.24 Calamity Relief is currently administered by
47 that deal with the constitution of the National the Ministry of Home Affairs at the central level and
Disaster Response Fund and National Disaster by a SLC chaired by the Chief Secretary at the state
Mitigation Fund. The ToR require us to examine level. The DM Act envisages the formation of the
the issue of financing of disaster management with National Disaster Management Authority (NDMA)
reference to these funds as well. Legislation of this at the apex level to plan, coordinate and implement
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Chapter 11: Disaster Relief
disaster management at the central level and lay (NDRF) shall be administered by the NEC to meet
down guidelines for the state authorities. The Act the expenses for emergency response, relief and
also envisages a National Executive Committee rehabilitation in accordance with the guidelines
(NEC) that shall provide execution assistance to the laid down by the Central Government in
NDMA in the discharge of its functions. Currently, consultation with the NDMA. The National
the high level committee and the Ministry of Home Disaster Mitigation Fund is to fund projects
Affairs provide guidance at the central level to the exclusively for the purpose of mitigation and is to
relief process. be administered by the NDMA. Similar provisions
have been made for the State and District Disaster
11.25 Similarly, the DM Act envisages a State
Response and Mitigation Funds.
Disaster Management Authority (SDMA) with
functions similar to those of the NDMA at the state 11.29 The Act states that both the national funds
level, as well as a State Executive Committee (SEC) shall be credited an amount, which the Central
that shall provide executive assistance to the SDMA. Government may provide, after due appropriation
Currently, as mentioned above, coordination and made by the Parliament, by law. The NDRF may
monitoring at the state level is being handled by a receive any grants that may be made by any person
committee chaired by the Chief Secretary. or institution for the purpose of disaster
management. However, there is no analogous
11.26 So far, the administrative control of disaster provision for the state and district funds.
management activities at the district level lay with
the District Magistrate in most of the states. The Views of the Central Government
DM Act provides for a District Disaster
11.30 The Commission invited the views of the
Management Authority under the District
Department of Agriculture and Cooperation,
Magistrate/Deputy Commissioner.
Ministry of Home Affairs, Planning Commission,
Roles and Responsibilities in Ministry of Finance and the NDMA on the
Relief Operations operationalisation of the National Disaster
Management Act, 2005 and particulerly on the
11.27 As per the Act, the NDMA shall recommend convergence between the CRF, the NCCF and the
the minimum standards with reference to the Response and Mitigation Funds envisaged in the
provision of relief in terms of the facilities to be Act. The views expressed by them are presented in
made available in the relief camps, relief to widows the following sections.
and orphans, ex gratia assistance on account of loss
of life and damage to houses and restoration of Department of Agriculture
means of livelihood. The NDMA may also, in case and Cooperation
of disasters of severe magnitude, recommend relief
11.31 The Department of Agriculture and
in terms of repayment of loans or grant of fresh
Cooperation is the nodal department for the
loans. Similar responsibilities have been vested with
management of drought, hailstorm and pest attack.
SDMA at the state level. The executive powers with
regard to calamity relief as well as powers to ensure 11.32 The department has referred to the
compliance with directions in carrying out the relief recommendation of FC-XII that while disaster
measures are vested with SEC. preparedness and mitigation are important, they
need to be built into state plans, as has been the
Financing Arrangements practice, and that the focus of the CRF/NCCF must
be primarily on calamity relief.
11.28 The Act provides for a Disaster Response
Fund (DRF) and a Disaster Mitigation Fund 11.33 The department has expressed the view that
(DMF), each at the national, state and district the schemes of the Calamity Relief Fund and the
levels. The National Disaster Response Fund National Calamity Contingency Fund are
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Thirteenth Finance Commission
functioning satisfactorily and may continue in of the National Disaster Mitigation Fund as
their present form. required under the DM Act for mitigation projects
in high priority areas, to be taken up by the NDMA.
Ministry of Home Affairs They have suggested a one-time grant for the
11.34 The Ministry of Home Affairs (MHA) is the creation of ‘national disaster response reserves’,
nodal ministry for the management of notified mainly consisting of non-perishable items like tents,
natural disasters in the country, except drought, tarpaulins, shelters, water purification equipments,
hailstorm and pest attack. The ministry has opined lighting equipment, etc. The NDMA has also
that the NCCF should be merged into the NDRF from highlighted the need for capacity building of the
1 April 2010 and that the unspent balances in the states’ relief and mitigation machinery.
NCCF be taken as the opening balances under the 11.38 The NDMA has focused especially on the
NDRF. It has suggested that the Commission may current state of fire services in the country and has
recommend allocation of adequate funds to the argued for the upgradation of fire-preparedness and
corpus of the NDRF. Similarly, it has suggested provision of a grant of Rs. 7000 crore to the State
merging of the CRF with the State Disaster Response Governments for this purpose. We have considered
Fund (SDRF), with the unspent balances under CRFs this issue in our chapter on local bodies.
being treated as the opening balances in the
respective SDRFs. With regard to the District Ministry of Finance
Disaster Response Fund (DDRF), it has suggested
11.39 The Ministry of Finance has stated that the
that ‘as per the existing system, allocation of funds
current system has been extremely beneficial to
to various districts in DDRF out of SDRF may be left
states and has passed the test of time. The ministry
to the discretion of the concerned State Government’.
has pointed out that the creation of the NDRF
11.35 MHA has suggested the inclusion of cold encompassing the NCCF may deprive the disaster
wave/frost, sea erosion, lightning and heat wave relief effort of the balancing influence of the NCCF-
in the list of natural calamities. It has also release exercise. With regard to mitigation, MoF has
suggested inclusion of chemical, biological, stated that it should be a part of the overall plan
radiological and nuclear (CBRN) emergencies/ process and that the creation of the fund would add
disasters, as these have been included by the another layer of approval for the relevant ministries
NDMA in the draft guidelines formulated for and departments.
operation of the NDRF.
Planning Commission
11.36 The Ministry has suggested that the National
Disaster Mitigation Fund should be funded through 11.40 The Planning Commission is of the opinion
a separate budget head under the ministry’s budget that the Finance Commissions have been giving
on the plan side. The ministry has also suggested that their recommendations on the financing of disaster
some percentage of funds under Centrally Sponsored relief to fill in the gap caused by the absence of a
Schemes (CSS) should be earmarked for disaster statute on this issue. With the DM Act coming into
mitigation/long term disaster preparedness. force, this gap has been filled and there is no need
for the Finance Commission to make a specific
Views of NDMA provision in this matter.
11.37 The NDMA has argued for mainstreaming
Views of the State Governments
disaster resilience into the development process and
has suggested the incorporation of disaster 11.41 The State Governments, in their
management into the Five Year and Annual Plans memoranda to the Commission, have offered their
of the central ministries and departments comments on various aspects of financing of
concerned. The NDMA has also suggested creation relief expenditure.
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Chapter 11: Disaster Relief
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Thirteenth Finance Commission
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Chapter 11: Disaster Relief
expenditure on a graded basis. Under this Secretariat. The Secretariat works in coordination
arrangement the government supports evacuation with the State and Municipal Governments in case
operations, restoration of public works and of activities relating to civil defence. These activities
infrastructure, replacement or repair of basic are funded, at the central level, out of the Civil
essential personal property of individuals, etc. The Defence Action Programme of the Union Budget.
Emergency Act of Canada has been put in place to The respective states and municipalities have
strengthen the emergency management activities similar budgetary provisions to meet the
in the country. It sets out clear rules and responses expenditure on disaster management.
for all federal ministries across the full spectrum of
emergency management. The Indian Context
11.60 In most countries where relief activity is
South Africa
primarily the responsibility of State/Provincial
11.56 The Disaster Management Act, 2002, of Governments, assistance from the Federal/Central
South Africa provides for national, provincial, and Government to the lower levels of government is
municipal disaster management centres. The mostly in the form of case-specific grants/
primary responsibility of disaster management lies reimbursement. These are more in the nature of the
with the local and the provincial governments. NCCF scheme of our country and, in that sense, the
However, depending upon the intensity of the CRF scheme that provides for a structured fiscal
disaster, the National Government may intervene transfer from the Central to State Governments for
and provide adequate financial assistance (the Act the purpose of financing relief expenditure is
provides for declaration of a disaster as local, unique. Through the CRF scheme, successive
provincial or national disaster). For the purpose of Finance Commissions have built in the requirement
immediate relief, it maintains a Disaster and of relief expenditure financing in the overall scheme
Emergency Fund, which is used to supplement the of fiscal transfers.
efforts of the local and provincial governments and
is operated by the central cabinet. Review of the Existing Schemes
11.57 Activities relating to post-disaster
reconstruction are funded from a national reserve CRF and NCCF
established in line with budgetary requirements 11.61 The current schemes of the CRF and the NCCF
under the medium-term expenditure framework to have served their purpose well. Most of the states, in
provide contingency funds for a range of situations. their memoranda, have acknowledged the utility of
The Act only deals with preparedness, response, and these schemes in times of calamity. The states have
recovery and leaves mitigation to be taken up by the pointed out certain operational difficulties, some of
respective ministries from their budgeted grants. which are general in nature and some specific to the
respective states. Some of the points raised by the
Japan states with regard to the scheme layout pertain to
11.58 In Japan, the basic framework of disaster issues that are decided by the Central Government
management is provided by the Disasters post-Finance Commission awards and these need to
Countermeasures Basic Act, 1961. The government be addressed by the Central Government.
provides various grants and loans to the Prefectural 11.62 The size of the CRF is determined on the
and Municipal Governments for their effort in basis of past expenditure of the states on calamity
meeting response and recovery expenditure. relief. Some states have pointed out that the
inter-se distribution of the CRF should be decided
Brazil
on the basis of losses due to natural disasters,
11.59 In Brazil, the nodal agency for disaster disaster-proneness of the state concerned, and the
management is the National Civil Defence history of natural disasters, etc. Since the objective
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Thirteenth Finance Commission
of the fund is to meet expenditure on relief only, Existing Schemes and Disaster
past expenditure on calamity relief can be Management Act
considered as a good proxy for the requirement of
11.66 With the Disaster Management Act, 2005
the state. Historical expenditure trends may be
coming into force and the funds envisaged
affected adversely by the revenue raising capacity
constituted, after notification of the relevant
of the state, where, despite a felt need, the state may
sections of the Act, co-existence of the CRF/NCCF
not have been able to spend due to lack of resources.
and the funds envisaged under the Act would, in
To correct such situations, FC-XI gave an ad-hoc
our opinion, be an unnecessary overlap. The CRF/
premium to low-income states over the past average
NCCF had been constituted by previous
expenditure on calamity relief of 10 per cent, which
Commissions to fill in the structural gap that existed
was raised to 25 per cent by FC-XII. The size of the
due to the lack of any explicit provisions in the
CRF, as decided by the previous Commissions has
Constitution or any other legislation in force.
been more or less adequate.
11.67 The Act specifies separate funds for response
11.63 As far as the NCCF is concerned, the fund
and mitigation. While CRF/NCCF were designed
has a specific role to play in case of disasters that
keeping only response in mind, Finance
are beyond the coping capacity of the states.
Commissions have been taking the view that
Experience shows that the fund has great utility and
mitigation and recovery/reconstruction should be
has been found useful in meeting response
met out of the state/central plans. With respect to
requirements immediately.
the NDRF, the Act specifies that it should be at the
11.64 The states have also raised the issue of lack disposal of the NEC and receive funds from the
of clarity in the assessment of the quantum of Union Budget.
assistance and releases. The Comptroller and
Auditor General of India has acknowledged this Administrative Mechanisms
issue in his performance review of tsunami relief
11.68 While earlier Commissions had
and has recommended that the Ministry of Home
recommended creation of a high level committee
Affairs and the Ministry of Finance, in consultation
and State Level Committees at the central and state
with the State Governments, ‘need to put in place a
levels, respectively, the Act provides for clear
generally acceptable system/mechanism of
assessment of the damage and determine at least administrative structures from the central to the
the general criteria based on which the quantum of district level in terms of disaster management
assistance would be determined in natural authorities and executive committees. In view of the
calamities so as to bring in transparency and specific statutory provisions in the Act, we feel it
institute a good management practice’. would be necessary to ensure that there is no
duplication of administrative structures as a result
List of Natural Calamities of the transition.
11.65 Over and above the list of six natural Risk Transfer and Insurance
calamities (cyclone, drought, earthquake, fire, flood
and hailstorm) recognised by the previous Finance 11.69 While the vulnerability of various parts of the
Commissions and tsunami (added later by the country to disasters is high, the current level of
government), FC-XII included landslides, insurance penetration in India is less than 1 per cent
avalanches, cloud burst and pest attack in the listed across the country. Pooling of risk of disaster at the
calamities. The list was considered to be generally individual level is therefore a big challenge.
exhaustive, though some states have made FC-IX was formally given a term of reference relating
representations for the addition of state-specific to the ‘feasibility of establishing a national insurance
events like heat/cold wave, frost, lightning and sea fund to which the State Governments may contribute
erosion to this list. a percentage of their revenue receipts’ and came to
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Chapter 11: Disaster Relief
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Thirteenth Finance Commission
availability of adequate funds for calamities of a respectively as in case of the CRF. However, since
severe nature. Since, with the introduction of Goods funding of their 25 per cent share may overstretch
and Services Tax (GST) all cesses are expected to the fiscal capacity of the special category states, we
be subsumed in the tax structure, alternative recommend the funding of the SDRFs in the ratio
sources of financing shall have to be identified and of 90:10 by the Central and State Governments,
necessary budgetary provisions made, linked to the respectively, for the special category states.
expenditure from the NDRF in the previous year.
Disaster Mitigation
11.79 Similarly, it is our view that the CRFs may
be merged into the SDRFs constituted under the 11.83 As far as disaster mitigation is concerned, we
Act as on 1 April 2010 and that the balances in the believe that it should be a part of the plan process and
CRF, as at the end of 2009-10, be transferred to that the expenditure therein should be met out of the
the SDRFs. Although some states have suggested plan resources of the respective ministries of the Union
that unspent balances in the CRF be allowed to be and the states. This is also advisable as there are
used for plan financing, we feel that using these as already schemes at the central as well as state levels
an opening balance in the SDRFs would provide a that are targeted towards mitigation, in areas such as
cushion to the states in terms of financing relief drought-proofing, flood and water management, soil
expenditure. This will also bring about the required erosion and promotion of earthquake-resistant
continuity in the existing scheme of relief structures. While we realise that the current levels of
financing. Regarding financing of the SDRF in the funding of these schemes may not be adequate, it is
future, in view of the experience with the CRF, it is our view that this aspect is best left to be decided by
essential that Central and State Governments the Planning Commission and the NDMA.
jointly contribute to this fund.
11.84 Our view is broadly in line with the approach
11.80 With the DM Act coming into force, the taken by the other bodies that have looked into this
primary responsibility of disaster relief has been cast aspect. The Second Administrative Reforms
upon the states. The Act is silent on the source of Commission (SARC) has dealt in great detail with
funding of the SDRFs. However, in our opinion it issues relating to disaster mitigation and disaster
may not be prudent to assume that the entire management plans, as envisaged under the DM Act.
requirement for relief can be met out of the states’ It has recommended that disaster plans should be
resources. The existing system of CRF has proved to included in the development plans of the line
be beneficial and has had a wide degree of acceptance agencies (i.e., central ministries/departments and
among the State Governments. Any radical departure State Governments) and local bodies. SARC has also
from this dispensation may not be desirable. There recommended that the incorporation of disaster
is, therefore, a sound case for examining the issue of mitigation plans into development plans should be
central funding for the SDRFs. specially monitored at the Five Year and Annual
Plan discussions at the state and Planning
11.81 International experience indicates that the
Commission levels.
practice that is broadly followed, even in countries
where disaster management is the primary 11.85 With regard to financing arrangements, SARC
responsibility of the State/Provincial Governments, had recommended the setting up of the funds
is that there are in place schemes/programmes of mentioned in the DM Act from 1 April 2007. However,
the Federal/Central Government for providing except for a nominal beginning by a handful of states,
financial assistance to sub-national units in there has been little progress on this front.
relief works.
11.86 The Eleventh Five Year Plan document
11.82 We, therefore, recommend that for general emphasises the necessity of mainstreaming disaster
category states, the SDRFs should be funded by the management into development planning. It mentions
Central and State Governments in the ratio of 75:25 that every development plan of a ministry/department
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Chapter 11: Disaster Relief
should incorporate elements of impact assessment, added back to the total expenditure on calamity
risk reduction, and the ‘do no harm’ approach. It relief from the consolidated fund. Despite this, in
further states that the State Governments need to give some states, we found that the expenditure was not
priority to hazard identification and risk assessment fully accounted for. Due to this lack of uniformity
in their plans and schemes. in complying with the stipulated accounting
practices, we have adopted the methodology of
11.87 On financing, it states that a portion of plan
using total expenditure under 2245 followed by
funds should be earmarked for efforts that, directly
previous Finance Commissions.
or indirectly, help in disaster management. It
suggests that every project should provide adequately 11.91 We have followed the methodology outlined
for disaster mitigation and management. below to arrive at the average expenditure under
calamity relief :
Allocations for the SDRFs
i) We classified expenditure under calamity
11.88 We are aware that, ideally, the best relief under the major head 2245, the total of
methodology to assess the requirement of the SDRF which was taken for the relevant years. This
would be to base it upon the Hazard-Vulnerability- has been used as the basis for the allocation.
Risk profile of the states, as it would be a good
ii) In some states, we found that a major portion
indicator of the disasters that a state may face.
of the expenditure was debited directly from
However, we have found that there is no reliable
the CRF maintained in the public account. We
exercise that maps the states on such a scale. Since
have added such expenditure to (i) above. In
the DM Act mandates the preparation of Disaster
some cases of exceptionally high expenditure
Management Plans at the national, state and district
booked under finance accounts, the
levels, we recognise that it would be both possible
additional information and notes submitted
and useful to take up such an exercise in the future.
by the states were taken into account to
11.89 In the absence of any such reliable indicator correct for accounting inconsistencies.
at present, we have continued to adopt an
iii) Annual releases from the NCCF were
expenditure-based approach, in line with the
deducted from the total expenditure under
practice of the previous Commissions. To arrive at
2245 as these had been earmarked for
the allocations to the SDRFs of various states, we
specific calamities of an exceptional nature.
have taken into account the expenditure on calamity
relief in the period 2001-08. We have opted for this iv) We have taken the total obtained in (iii)
time period keeping in mind the creation of three above as the expenditure on calamity relief
new states in the year 2000. for that particular year. We have adjusted
these figures for inflation in the respective
11.90 The expenditure on relief is booked under
years to arrive at the value of these
the major head of account 2245. Within this
expenditures at 2009-10 prices and the
account, three sub-major heads, viz. 01, 02 and 80,
average expenditure for the period 2001-08.
pertain to actual expenditure, while 05 pertains to
book adjustments between the Consolidated Fund v) We found that in the past, there has been
and the Calamity Relief Fund. We cleaned up these some lack of clarity regarding states which
transactions to obtain the actual expenditure on were entitled to an additional amount on
calamity relief. We found that while in some states account of low fiscal capacity. We decided
the prescribed accounting practice is being followed, to include in this category all special category
in some other states, expenditure has been debited states, and all states with per capita income
directly from the public account. To correct for this below the all-state average per capita GSDP
deviation, the disbursement from the public of Rs. 30,203 (2006-07), viz. Bihar,
account, which was not matched with an equal Chhattisgarh, Jharkhand, Madhya Pradesh,
adjustment in the consolidated fund, has been Orissa, Rajasthan and Uttar Pradesh. We
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have, therefore, allowed the above- mechanism should be followed for the amounts
mentioned states an increase of 30 per cent received from NDRF as well.
on the figures arrived at in (iv) above in order
11.95 We recommend that those states that have
to compensate for the possibility of lack of
not been following this accounting system should
resources constraining their average
switch over to this arrangement from 1 April 2010.
expenditure on calamity relief.
The Ministry of Finance should ensure that these
vi) We further compared the figures arrived at norms are adhered to and that release of the second
above, with an amount 10 per cent above the instalment of 2010-11 as well as subsequent
CRF size for the year 2009-10, as instalments should be linked to strict adherence to
recommended by FC-XII and adopted the the accounting norms given above. The C&AG may
higher of the two numbers as the base year appropriately review the adherence to these
estimate, to ensure that at least the current prescribed accounting practices.
level of funding is maintained across states.
11.96 In our opinion, the provision to mandatorily
vii) Finally, we have allowed a 5 per cent increase constitute DDRFs under the DM Act merits a review.
every year to arrive at the projection for the If DDRFs were to be maintained in the manner of
award period. the NDRF or the SDRF, states would lose the
flexibility of pooling of resources for calamity relief
11.92 We recommend the aggregate size of all
and such an approach would only lead to
SDRFs as Rs. 33,581 crore, the state-wise year-wise
fragmentation of resources without any tangible
breakup of which is given in Annex 11.1.
benefit. Hence, it may be left to the states to decide
11.93 We recommend that 75 per cent of the SDRF on whether they should constitute DDRFs or whether
for general category states and 90 per cent for funds could be effectively routed to each district with
special category states, as arrived above, be the approval of SECs from the SDRF in the manner
contributed by the Centre as grants-in-aid. Along currently being followed under the CRF. Section
the lines of the present CRF, these funds should be 48(1) of the DM Act may, therefore, need to be
released to the states by the Ministry of Finance as amended to provide for such an option to the states.
per the guidelines that may be put in place by the
Ministry of Finance/nodal ministry. The central and List of Calamities
state-wise share for each year is given in Annex 11.2.
11.97 The scope of the scheme is another issue
As a prerequisite to this, the states should create
where the Act has brought about a paradigm shift.
the State Disaster Relief Fund in their respective
Till date, the Finance Commissions have been
public accounts (under interest bearing deposits)
prescribing a list of natural calamities, relief
and transfer the balances under the CRF as on 31
expenditure on which could be funded under the
March 2010 to the SDRF.
scheme. This list was originally drawn by FC-II and
11.94 On the accounting practice, we are of the view last modified by FC-XII.
that the current practice, of meeting the expenditure
11.98 With the Act coming into force, the definition
under sub-major heads 01, 02 and 80 of the major
of disaster widens to cover even man-made causes
head 2245, showing transfers to the fund under 05-
and accidents. As stated earlier, the focus of the
101 and showing a ‘deduct amount met from SDRF’
definition of the Act is on the impact of the calamity.
under 05-901, needs to be continued. This brings in
However, for the purpose of operationalisation of
more transparency in expenditure reporting and
the provisions of the Act, there is a need to have a
enables effective audit. Direct expenditure from the
concrete list of events and stipulation of the norms
public account should be eschewed in future. Even
of funding under the Act.
if, for administrative reasons, expenditure on relief
has to be met under a head of account other than 11.99 The states have requested the addition of
2245, it should be finally booked under 2245 through certain events such as cold and heat wave, frost,
an inter-account transfer. A similar accounting lightning, and sea erosion to the list of calamities.
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Chapter 11: Disaster Relief
We feel that events like heat and cold wave and frost basis of the overall size of the SDRF of a state, wherein
are very difficult to quantify and the scale of severity the allocated amount has been fixed at Rs. 5 crore,
would vary from region to region. Lightning is a Rs. 15 crore, Rs. 20 crore and Rs. 25 crore if the
localised event which does not have widespread average annual allocation for the concerned state is
impact. Sea erosion is an occurrence which takes less than Rs. 50 crore, Rs. 100 crore, Rs. 200 crore
place over a period of time, and hence, may be best and Rs. 500 crore respectively and at Rs. 30 crore if
tackled through mitigation efforts. the allocation is more than Rs. 500 crore. This
amount may be used for taking up activities for
11.100 In our opinion, as far as the SDRFs are
building capacity in the administrative machinery for
concerned, the existing list of natural disasters
better handling of disaster response and for
adopted by the Finance Commissions has covered
preparation of district and state level disaster
the needs of the states to a very large extent. The
list covers most of the prevalent events. However, management plans as envisaged in the DM Act. The
for very specific events that could even be allocation for each state is given in Annex 11.3.
man-made and require very high level of funding,
Fund for Pooled Procurement
but may have low chance of occurrence, financing
of relief arrangements should best be left out of the 11.103 The role of the recently created National
SDRFs. The Government of India may consider Disaster Response Force is crucial in responding to
financing disaster relief in respect of such disasters that are of a severe nature and require
man-made disasters out of the NDRF, after the list immediate relief to the affected. Our discussion with
of eligible disasters has been drawn and the norms the NDMA and the State Governments highlighted
for funding carefully stipulated. If such man-made the fact that procurement of relief material on short
disasters are to be included, adequate additional notice often comes with an associated premium in
budgetary allocations may have to be provided. pricing and could adversely impact quality. It is
11.101 The Public Liability Insurance (PLI) Act, suggested that a national inventory of equipment and
1991, notified presently for specified quantities of material is maintained for providing immediate relief.
179 explosive, toxic and highly reactive chemicals, It is also advisable to keep ready an inventory of items
establishes the principle of liability for enterprises such as life saving equipment and tents etc. with the
engaged in hazardous activities. Setting up of the National Disaster Response Force. We, therefore,
Environment Relief Fund (ERF) under the Act in propose that an initial grant of Rs. 250 crore, in the
2008 has further strengthened its provisions. As on form of a revolving fund, be provided to the National
31 March 2009 the ERF has a corpus of Rs. 285 Disaster Response Force for the purpose. Whenever
crore. The legal framework, therefore, provides these articles are used for responding to a calamity,
another source of relief for financing man-made the cost (or rent for those items that can be reused)
disasters. The PLI Act needs to be strengthened by should be booked to the overall cost of relief operations
appropriate inflation indexation of the amount of incurred by the concerned State Government and the
relief provided in the schedule and by expanding inventory replenished on a regular basis.
the list of chemicals covered under the Act.
Risk Pooling and Insurance
Capacity Building 11.104 As regards risk pooling and insurance, we are
11.102 Effective disaster response requires trained inclined to agree with the views expressed by the
manpower to deal with complex situations where earlier Finance Commissions on this subject, that the
effective and speedy handling can reduce the impact pooling of disaster risk at the individual level poses
of a disaster on human life and property. It is huge administrative challenges in a country like India
necessary to continuously undertake measures to where the majority impacted by disasters are primarily
build capacity amongst those handling response and the poor who have, consequently, very little capacity
creating awareness amongst people. An additional to pay the risk premia involved. Apart from the fact
grant of Rs. 525 crore is being recommended on the that payment of risk premia towards insurance against
201
Thirteenth Finance Commission
natural disasters could be a highly unpopular step, the ratio of 75:25 for general category states
administrative cost of collection of such premia from and 90:10 for special category states (paras
a large number of potential beneficiaries spread over 11.78, 11.79, and 11.82).
a wide geographical area would, indeed, be daunting. ii) Balances as on 31 March 2010 under NCCF
Disaster relief has long come to be viewed as a public and the state CRFs to be transferred to the
good, to be delivered gratis by the state, and in the NDRF and respective SDRFs (paras 11.78
very likely event that no (or an insignificantly small) and 11.93).
insurance premia can be levied, the very concept of
risk pooling would become infructous. In our view, iii) Budgetary provisions for the NDRF to be
for high-frequency-low intensity disaster events, it linked to expenditure of the previous year from
would indeed be cheaper for the State Governments the fund. With cesses being subsumed on
to directly provide disaster relief, as is being done introduction of the GST, alternative sources
presently, instead of going through an insurance of financing to be identified (Para 11.78).
intermediary. For low frequency-high impact iv) Total size of the SDRF has been worked out
disasters, financing through insurance mechanisms as Rs. 33,581 crore to be shared in ratio
is certainly a feasible option. However, given the low given above. (Para 11.92)
level of insurance penetration in India, insurance v) An additional grant of Rs. 525 crore provided
products covering disaster events may only materialise for capacity building (Para 11.102).
sometime in the future.
vi) Assistance of Rs. 250 crore to National
Disaster Response Force to maintain an
Administrative Mechanism
inventory of items required for immediate
11.105 The administrative mechanism envisaged in relief (Para 11.103).
the DM Act needs to be put in place, clearly spelling
vii) Provisions relating to the DDRF in the DM Act
out the powers and responsibilities at each level of
may be reviewed and setting up of these funds
the structure. The NDRF may be operated by the
left to the discretion of the states (Para 11.96).
National Executive Committee, as provided in the
Act, under the overall directions of the NDMA. viii) Mitigation and reconstruction activities to
Further, the SDRFs, including the grant, as be kept out of the schemes funded through
recommended by the Commission, along with the FC grants and be met out of overall
state’s share, may be operated by the State Executive development plan funds of the Centre and
Committee, as provided under the Act, under the the states (Para 11.83).
overall directions of the SDMA. ix) The list of disasters to be covered under the
scheme financed through FC grants to
11.106 Currently, while the administrative aspects
remain as it exists currently. However, man-
are dealt with by the Ministry of Home Affairs (other
made disasters of high-intensity may be
than a few disasters, as mentioned earlier), the
considered for NDRF funding once norms
financial matters are handled by the Ministry of
have been stipulated and requisite additonal
Finance. We feel that this mechanism should be
allocations made to the NDRF (Para 11.100).
continued for the administration of the NDRF as
well as the SDRF under the overall structure x) The administrative mechanism for disaster
relief to be as prescribed under the DM Act,
mandated by the DM Act.
i.e., the NDMA/NEC at the Centre and the
Summary of Recommendations SDMA/SEC at the state level. Financial
matters to be dealt with by the Ministry of
11.107 Our recommendations are summarised below: Finance as per the existing practice (paras
i) The CRF to be merged into the SDRFs of 11.105 and 11.106).
the respective states and the NCCF into the xi) Prescribed accounting norms to be adhered
NDRF. Contribution to the SDRFs to be to for the continuance of central assistance
shared between the Centre and states in the to the SDRFs (Para 11.95).
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CHAPTER 12
Grants-in-Aid
203
Thirteenth Finance Commission
subsequent sections of this chapter and Constitution. We have listed these grants in Table
recommended the third and fourth sets of grants 12.1 of this section in order to be comprehensive.
to enable and incentivise performance for better The grants-in-aid of the revenues of states, as
governance and delivery of public services and for recommended by us for the award period 2011-15,
protection of the environment respectively. In doing are indicated below:
so, we have designed some of these grants, such as Table 12.1: Grants-in-Aid to States
those for promotion of renewable energy, better
(Rs. crore)
water sector management and reduction of infant
I Local Bodies 87519
mortality, to be forward looking and linked to
II Disaster Relief (including for capacity
attainment of goals in the future.
building) 26373
12.6 Our fifth grant is for maintenance of roads. III Post-devolution Non-plan
A proper road infrastructure is vital, not only for Revenue Deficit 51800
economic development, but also for better delivery IV Performance Incentive 1500
of services such as education and health. There is V Elementary Education 24068
evidence to show that road networks lead to, among VI Environment 15000
other things, improved teacher attendance, quicker (a) Protection of Forests 5000
medical assistance and a greater number of (b) Renewable Energy 5000
institutional deliveries. We hope that the enhanced (c) Water SectorManagement 5000
provisioning for maintenance, including the focus VII Improving Outcomes 14446
on the newly created Pradhan Mantri Gram Sadak (a) Reduction in Infant Mortality Rates 5000
Yojana (PMGSY) roads, will help in sustaining road (b) Improvement in Supply of Justice 5000
connectivity. (c) Incentive for Issuing UIDs 2989
(d) District Innovation Fund 616
12.7 Some states, in their memoranda and in their
(e) Improvement of Statistical Systems
interaction with us, have raised concerns about the at State and District Level 616
conditionalities attached to grants. We have been (f) Employee and Pension Data base 225
careful to adopt a non-intrusive approach in this VIII Maintenance of Roads and Bridges 19930
regard. Grants, other than for NPRD, are IX State-specific 27945
sector-specific. However, a large portion of the X Implementation of model GST 50000
forest grant, which is given in recognition of the Total 318581
economic disabilities imposed by forests, has been
freed for use as a development resource of the states. Post-devolution Non-plan Revenue
Like previous Commissions, we have tried to ensure Deficit Grant
non-substitution so that our grants are indeed an
12.9 The assessment of revenues and expenditure
additionality to the provisions in state budgets for
of states, along with the norms adopted by us, has
the purpose for which they are earmarked wherever
been provided in Chapter 7. On the basis of this
relevant. Further, where the grants are forward-
assessment, we have worked out the pre-devolution
looking, the conditionalities stipulate release of
non-plan revenue deficits for each state. In Chapter
incentive amounts on attainment of benchmarked
8 we have laid down the share of each state in central
targets. States, therefore, have an incentive to
taxes and projected the share of each state based
improve their performance.
on the tax revenue of the Centre, as estimated in
12.8 Grants for local bodies in line with Para 4(iii) Chapter 6. Further, based on the pre-devolution
of the ToR and for disaster management in terms non-plan revenue deficit and share of each state in
of Para 8 of the ToR have been dealt with at length central taxes, we have projected the post-devolution
in chapters 10 and 11, respectively. These grants also non-plan revenue deficit/surplus for each state for
flow to the states under Article 275 of the the award period.
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Chapter 12: Grants-in-Aid
12.10 The normatively assessed post-devolution Andhra Pradesh, Chhattisgarh, Goa, Gujarat,
non-plan revenue deficit for a state signifies the Haryana, Karnataka, Maharashtra and Tamil Nadu,
existence of a vertical imbalance yet to be corrected have pre-devolution surpluses for all five years,
and an assessed need still to be met. As explained while Punjab and Rajasthan have a surplus for the
in Chapter 7, we have followed a normative last two years and one year respectively.
approach in assessing the revenues and expenditure
12.12 The post-devolution deficits, obtained by
of states, which ensures that the assessed deficit is
adding the respective states’ share in central taxes
not due to inadequate revenue effort or excessive
to the pre-devolution deficit, are shown in Table
expenditure by any state. We have, therefore,
12.3. It can be seen from the table that all general
decided to provide grants-in-aid to those states that
category states have surplus over the entire award
have a post-devolution non-plan revenue deficit to
period. Amongst the special category states, three
meet this assessed deficit.
states, viz. Assam, Sikkim and Uttarakhand, have
12.11 Table 12.2 shows the pre-devolution post-devolution surplus for the entire award period.
non-plan revenue deficit of each state as assessed The remaining eight special category states have
on a normative basis in Chapter 7. Eight states, viz. deficits for all five years during the award period.
Table 12.2: Pre-Devolution Non-plan Revenue Table 12.3: Post-Devolution Non-plan Revenue
Deficit/Surplus (-) Deficit/Surplus (-)
(Rs. crore) (Rs. crore)
State 2010-11 2011-12 2012-13 2013-14 2014-15 State 2010-11 2011-12 2012-13 2013-14 2014-15
Andhra Pradesh -8651 -11839 -6745 -11137 -16143 Andhra Pradesh -22796 -28430 -26314 -34221 -43371
Arunachal Pradesh 1203 1262 1548 1608 1651 Arunachal Pradesh 534 478 623 517 364
Assam 7149 7211 9248 9298 9225 Assam -248 -1466 -986 -2774 -5015
Bihar 14890 15399 18940 19659 20277 Bihar -7370 -10710 -11857 -16668 -22572
Chhattisgarh -2129 -2480 -439 -762 -1160 Chhattisgarh -7166 -8387 -7407 -8981 -10855
Goa -536 -763 -762 -1085 -1457 Goa -1079 -1399 -1513 -1970 -2501
Gujarat -8363 -12149 -12638 -18245 -24837 Gujarat -14564 -19422 -21216 -28364 -36773
Haryana -13814 -16394 -17774 -21235 -25235 Haryana -15951 -18900 -20731 -24722 -29348
Himachal Pradesh 3825 3923 4086 3912 3471 Himachal Pradesh 2232 2055 1883 1313 406
Jammu & Kashmir 6777 6993 7280 7511 7558 Jammu & Kashmir 3940 3665 3355 2881 2096
Jharkhand 1013 683 2075 1615 1111 Jharkhand -4700 -6015 -5830 -7709 -9886
Karnataka -11099 -14404 -14597 -19139 -24652 Karnataka -19924 -24755 -26806 -33540 -41640
Kerala 4705 3967 4210 2826 1134 Kerala -69 -1632 -2394 -4963 -8055
Madhya Pradesh 2646 2331 4755 4353 3728 Madhya Pradesh -11872 -14697 -15330 -19339 -24218
Maharashtra -14325 -19147 -19617 -26665 -34702 Maharashtra -24926 -31581 -34283 -43964 -55108
Manipur 2106 2184 2651 2773 2884 Manipur 1186 1105 1379 1272 1114
Meghalaya 1225 1295 1970 2067 2173 Meghalaya 393 319 819 709 571
Mizoram 1263 1327 1667 1777 1859 Mizoram 715 684 908 882 804
Nagaland 2239 2319 2604 2710 2827 Nagaland 1599 1568 1719 1666 1595
Orissa 4718 4617 6495 6364 6088 Orissa -5026 -6812 -6986 -9538 -12670
Punjab 1204 546 372 -739 -2065 Punjab -1628 -2776 -3546 -5361 -7517
Rajasthan 3990 1480 1796 334 -864 Rajasthan -7945 -12518 -14715 -19142 -23837
Sikkim 422 448 624 596 555 Sikkim -65 -124 -50 -200 -383
Tamil Nadu -6528 -8452 -7275 -10135 -13479 Tamil Nadu -16660 -20336 -21292 -26669 -32982
Tripura 2096 2156 2472 2535 2606 Tripura 1054 934 1030 835 600
Uttar Pradesh 14903 14126 19758 18343 16485 Uttar Pradesh -25219 -32933 -35751 -47132 -60747
Uttarakhand 2129 2179 2940 2922 2703 Uttarakhand -155 -500 -220 -805 -1693
West Bengal 14360 12687 13280 9908 5738 West Bengal -452 -4685 -7212 -14263 -22773
Gross Deficit 92864 87137 108771 101108 92071 Gross Deficit 11653 10808 11716 10074 7550
Gross Surplus -65446 -85630 -79847 -109140 -144593 Gross Surplus -187814 -248079 -264441 -350326 -451942
Net Deficit 27417 1507 28924 -8032 -52522 Net Deficit -176161 -237271 -252726 -340252 -444392
205
Thirteenth Finance Commission
For these states, in order to meet the post- Grant for Elementary Education
devolution non-plan revenue deficit, we
12.14 The Twelfth Finance Commission had
recommend a total grant of Rs. 51,800 crore for the
provided grants for the education sector based on
award period. The state-wise, year-wise details are
the rationale of equalising expenditure on this
given in Table 12.4.
sector across states. The grants were fixed on the
Performance Incentive basis of a two-stage normative measure of
equalisation. In the first stage, states with low
12.13 Three special category states, Uttarakhand, expenditure preferences (i.e., those states which had
Assam and Sikkim, received NPRD grants from a lower expenditure on education as a proportion
FC-XII to make up for their assessed deficits. Of of total revenue expenditure) were identified and
these, Uttarakhand, as a newly created state, benchmarked to the average expenditure on
received the NPRD grants for the first time during education (as a proportion of adjusted total revenue
the period of FC-XII. Assam has benefited from the expenditure) incurred by the respective groups, i.e.,
NPRD grants under all the Finance Commissions special and general category states. In the second
since FC-I, except under FC-VII. Sikkim became a state stage, states which had lower per capita expenditure
of the Indian Union in 1975 and has received NPRD than the group average, even after the adjustment
grants since FC-VII onwards. After normatively made in the first stage, were identified and grants
assessing the revenues and expenditure of these three
to the extent of 15 per cent of the difference between
states, as indicated in Chapter 7 and taking into
per capita expenditure of the state on this sector
account the devolution, as given in Chapter 8, these
and average per capita expenditure of the group
states are not found to be in need of NPRD grants any
were provided. Under this approach eight states, viz.
longer. In our view, this marks major progress by these
Assam, Bihar, Jharkhand, Madhya Pradesh, Orissa,
three states, particularly in view of the known cost
Rajasthan, Uttar Pradesh and West Bengal,
disabilities and other fiscal challenges that special
qualified for this grant.
category states face. In recognition of their efforts, we
recommend a performance grant as an incentive for 12.15 The Ministry of Human Resource
them to continue on their path of fiscal prudence, as Development (MHRD), in its Memorandum dated
indicated below: 16 March 2009, has urged the Commission to
provide grants, specifically for elementary
(Rs. crore) education, on the basis of actual estimation of
State 2010-11 2011-12 2012-13 Total
resource requirements and gaps in each state, rather
Assam 150 150 300 than in accordance with the earlier methodology of
Sikkim 80 60 60 200 equalisation. The ministry has suggested that the
Uttarakhand 400 300 300 1000 gaps may be worked out against a set of nationally
206
Chapter 12: Grants-in-Aid
accepted norms, in a manner such that all states there is lack of clarity on the basis of which
may be able to access this grant. projections of expenditure on account of the RTE Act
are to be made as also a lack of agreement on the
12.16 We agree with the views of MHRD that this
funds required, we are unable to use these projections
Commission should focus on the elementary
in making our recommendations. We do, however,
education sector. We do so because the right of
recognise that the implementation of RTE Act would
children in the age group 6 to 14 years to elementary
require considerable increase in the funding
education is a fundamental right under Article 21A
requirements for elementary education, which is
of the Constitution as amended in 2002. The Right
likely to put state resources under severe strain.
of Children to Free and Compulsory Education
(RTE) Act provides the legislative framework as 12.18 The SSA, the national programme for
envisaged in Article 21A of the Constitution. The universalisation of elementary education, through
universalisation of quality elementary education is its various components takes a holistic view of the
a critical foundation for secondary education and gaps and needs in terms of access, infrastructure,
employment skills which have a significant impact human resources and outcomes, of the elementary
on economic development. education sector. Besides providing for basic items
like teachers’ salaries and school maintenance
12.17 In its memorandum of March 2009, MHRD
grants, it also includes items aimed at improving
presented its estimates of state-wise requirements
quality with equity such as teachers’ training,
of resources for elementary education using the
remedial teaching, innovation funds, inclusive
alternative norms of the Sarva Shiksha Abhiyan
education for the differently-abled and
(SSA) and the RTE Act. When MHRD estimates
intervention for out-of-school children. The
were provided, the RTE had not been enacted. The
scheme addresses the investment needs of districts
Bill underwent some modifications during its
by making allocations under Annual Work Plans
passage in Parliament and was subsequently
and Budgets (AWP&B) through its normative
legislated in August 2009. Section 7(iv) of the RTE
framework. Reviews show that the SSA has had an
Act contains a provision whereby the Central
‘equalising’ effect as the disadvantaged and more
Government may request the President to make a
needy states and districts receive proportionately
reference to the Finance Commission under
more funds than the relatively better-placed states
sub-Clause (d) of Clause 3 of Article 280 to examine
and districts.
the need for additional resources to be provided to
any State Government in order to enable payment 12.19 In view of the above, we have adopted the
of the state’s share of funds to carry out the SSA norms and the estimates of annual funding
provisions of the Act. While we received a fresh set requirements, state-wise, as given by MHRD on the
of estimates from MHRD on the requirement of basis of these norms. In providing these estimates,
states for implementing the provisions of the RTE the MHRD has focused only on the recurrent items
Act, we have not received any formal reference on of expenditure on the grounds that they eventually
this issue. We also find that there is no unanimity need to become part of the state non-plan budgets.
on the financial estimates for the implementation Our projections, therefore, exclude the
of RTE Act. The MHRD has projected a requirement requirements of civil works. We have made certain
of Rs. 1,73,946 crore for the period 2010-15. The modifications to maintain consistency with
Planning Commission, on the other hand, in their assumptions made in other parts of our report
note dated 10 November 2009, has estimated the where we have assessed the non-plan expenditure
cost at Rs. 1,44,871 crore and has further observed requirements of the Centre and the states, as
that state-wise estimates need to be worked out. The explained below. The MHRD estimations have
Ministry of Finance has not given us any estimates assumed a minimum salary of Rs. 5000 per month
on this account. Consultations are yet to be held for primary teachers and Rs. 7000 per month for
with the states on details of MHRD projections. Since upper primary teachers. There is no uniform pattern
207
Thirteenth Finance Commission
in the manner of appointment and pay scales of SSA may not be able to provide more than 35 per cent
teachers across states. In some states such teachers from their resources over the current year and the
are appointed by the State Government on regular next year. Hence, we recommend for the award
pay scales, whereas in many others, such teachers period, a grant of 15 per cent of the estimated SSA
are appointed by local governments on local body expenditure of each state. This amount will cover
pay scales or on contract. The implementation of the difference between the targeted state share of
the Sixth Central Pay Commission (CPC) would, in 50 per cent by the terminal year of the Eleventh
any event, create an upward pressure on teachers’ Plan and the contribution required to be made in
salaries, whatever the mode of appointment. We 2008-09, i.e., 35 per cent of the individual states’
have, therefore, assumed an increase of 30 per cent SSA share.
over the base year, in view of the fact that the bulk
12.22 The north-eastern states are required to
of these teachers are located in rural areas. We have
provide only 10 per cent from their resources as their
also provided for an annual increase of 6 per cent
share for SSA. However, as the MHRD has pointed
on these salaries, in conformity with our
assumption of the post-CPC yearly increase in out in a supplementary memorandum, several of
salaries of government servants. Similarly, while these states have not been able to provide even this
SSA does not provide for any annual increase in the amount, leading to slowdown in implementation of
quantum of funds on account of inflation, we have SSA. In order to alleviate the fiscal constraints of
provided for an annual increase of 5 per cent across these states we recommend a grant amounting to the
all non-salary components of the scheme. difference between the average amount contributed
by each state in the years 2007-08 and 2008-09 and
12.20 The SSA began with a matching fund the amount they need to contribute (on the basis of
requirement of 15 per cent from states in 2001-02. a 10 per cent share) in each of the five years of the
Till 2006-07, the matching fund requirement was award period, subject to a minimum of Rs. 5 crore
25 per cent. It has increased progressively to 35 per per year. The requirement of the north-eastern states,
cent in 2007-08 and 2008-09 and to 40 per cent in calculated on this basis, is Rs. 367 crore over a period
2009-10. It is expected to go up to 45 per cent in
of five years.
2010-11 and to 50 per cent in 2011-12, the terminal
year of the Eleventh Five Year-Plan. We assume that 12.23 The recommended grant for elementary
the same ratio will continue in the remaining years education for all states, in aggregate, works out to
of the award period. Various states have expressed Rs. 24,068 crore. The state-wise and year-wise
difficulties in providing this matching share, allocations are given in Annex 12.1. In order to
especially since the size of their annual plans has ensure that these grants do not substitute for the
increased over the years. current expenditure of states, we stipulate that the
expenditure (plan + non plan) under elementary
12.21 We are of the view that, in the given
education, i.e., major head 2202, sub-major head -
circumstances augmenting the resources of the
01, exclusive of the grants recommended herein,
states to cater to this need will be the most
should grow by at least 8 per cent, the assumed
appropriate way to provide grants for the
growth rate in our projections of the non-salary
elementary education sector. This will also provide
component of the social sector during the award
some fiscal space to the states to meet a part of the
period, annually, during 2010-15.
additional resources required to implement the RTE
Act. We have also considered the fact that given the
Environment Related Grants
resource scarcity faced by the states as a result of
the economic slowdown, several states have not 12.24 In making its core recommendations, this
been able to provide for their share of 40 per cent Commission is charged with having to keep in mind
in 2009-10. In fact, we estimate that, due to the a set of ten considerations. The eighth in that list
adverse fallout of the economic downturn, the states reads: ‘The need to manage ecology, environment
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and climate change consistent with sustainable water-intensive crops, even in regions that are water-
development.’ scarce. There are also Government of India (GoI)
policies which have added to the environmental risks
12.25 The National Action Plan on Climate Change
facing the country. Perhaps the most egregious
2008 estimates the per capita emissions of carbon
example is the national fertiliser subsidy scheme.
dioxide in India at 1.02 metric tons per capita which
Uneven price interventions across nutrients have led
is well below the world average of 4.25 and that for
to a decline in soil quality due to application of a
China at 3.60. The energy intensity of the economy
distorted nutrient mix. These impacts have been
is also demonstrated in this document as having
alluded to earlier in the discussion on the fiscal bite
declined very considerably since the 1980s, to a
of the subsidy (Para 4.23).
present level comparing favourably with that of the
least energy-intensive developed countries. 12.28 The forests of India constitute the first line
of defence against pollution resulting from
12.26 There are, nevertheless, considerable
economic activity, whether of agricultural or
environmental risks facing the Indian economy,
industrial origin. Recognising this, FC-XII provided
which are structurally underpinned by the location
a grant of Rs. 1000 crore to states, distributed
of the territory of India among those areas identified
between them in accordance with the share
as the most vulnerable to climate change, the high
accounted for by each in the total forested acreage
population density and the economic dependence
in the country. Clearly, there is a paramount need
of more than half the labour force on the natural
to carry that grant forward. Forests provide a wide
resource base. These risks need to be identified and
variety of services. These encompass, first and
call for immediate preventive and remedial
foremost, the class of regulatory services such as
attention. To assist in these tasks we commissioned
carbon sequestration; sediment control and soil
two studies, one on environment, ecology and
conservation; ground water recharge; protection
climate change and the other on forestry-related
from extreme weather events and preservation of
issues, by The Energy Research Institute (TERI) and
bio-diversity. These services, by their very nature,
the Indian Institute of Forestry Management (IIFM)
accrue beyond the boundaries of the state in which
respectively.
the forest lies. Although there are benefits that do
12.27 The risks are of three types. Growth-related accrue exclusively to the state, from forest produce
risks resulting from uncontrolled release of industrial and recreational services yielded by standing
pollutants into the air and into water bodies, forests, there are national restrictions on timber
exacerbate poverty-related risks resulting from felling which impose the costs of having land under
inadequate access to potable water, absence of forests exclusively on the state in whose jurisdiction
adequate sanitation and indoor air pollution from it lies. The Forest (Conservation) Act, 1980
burning freely collected biomass for cooking. These restricted the diversion of forest lands for
have been further added to by policy-induced non-forestry purposes without prior approval from
environmental risks, several of which fall within the GoI. The Supreme Court, in its order of 12 December
decision sphere of states. The widespread practice 1996, restricted irregular felling of forests and
in states of zero-pricing electricity for farmers, has mandated management of forests according to a
resulted in an alarming fall in ground water levels in scientifically prepared working plan, approved by
many zones in the country, accompanied by soil GoI. Harvesting of forests was allowed only within
salinity due to the conjunction of over-application the prescriptions of the working plan, with
of underpriced groundwater and poor drainage. In additional restrictions on felling in high altitude
many states, surface irrigation water has a regions. The combination of benefit externalities
crop-specific rate structure, which is not and internalised costs clearly calls for federal
crop-neutral and frequently carries an adverse compensation. Accordingly, a grant calibrated to the
incentive in terms of encouraging cultivation of share of the national forested area falling in a state,
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Thirteenth Finance Commission
as well as to economic disability on the basis of the these have been estimated using the ‘small area
percentage of forested area in each state, is the first estimation technique’, whereby small-sampling area
of the three environmental grants provided for. results are used to generate the estimates for growing
These factors go into calculating the share of each stock at the state level. A sample of 10 per cent of
state in the total grant specified for forests which, districts has been used for estimating the detailed
in its total quantum, is determined within the inventory of forest at the national level. On the other
overall fiscal constraint governing transfers to states hand, data for categorisation of forest cover by
over the projection horizon. density is quite elaborate, and is mapped on a
1:50,000 scale using Geographic Information System
12.29 As a consequence of the Forest
(GIS) and remote sensing across all forest types of
(Conservation) Act, 1980 and following a Supreme
the country. We have, therefore, decided to use the
Court judgement in 2002, there is already in place
categorisation by density of area under forest cover
a national provision for compensatory afforestation
for calibrating the incentive grant.
and Net Present Value (NPV) payments when land
under forests is diverted to non-forest uses for 12.31 The forest grant is based on data at a point
industrial or other purposes. These payments were in time. The formula used is essentially a reward
to flow into a Compensatory Afforestation Fund for the present stock. It is hoped that the size of the
Management and Planning Authority (CAMPA). grant will provide the wherewithal for preservation,
There is, presently in place, an ad hoc CAMPA with going forward, so as to halt and hopefully reverse
which the funds deposited by way of compensatory past declines in the quantum and quality of area
afforestation and NPV now lie. This body has been under forests. Further, the grant is so configured
authorised to release about Rs. 100 crore annually that, subject to a mandated floor, the funds are not
to the respective states’ CAMPA for the next five tied to any further expenditure on forests. Beyond
years. The principle of allocation to states of the the mandated floor, the intent is to provide fiscal
funds so collected is in accordance with the resources by which the state can enable alternative
jurisdiction in which the diversion of forest land economic activities as a substitute for the economic
took place. In contrast to CAMPA flows to states, disability imposed by forest cover. The only
which are in the nature of compensation to states conditionality is that states develop working plans
for diversion of forest land, the forest grant for each of the several forest zones into which they
envisaged here is calibrated to the extent of standing are divided. The initial grant provision will provide
forest in each state. It is hoped that states will funding to develop the working plans within a
thereby see the advantages of retaining land under stipulated period of two years. This conditionality
forest cover and will efficiently and effectively direct is intended as an enabler of governance capacity
CAMPA funding towards afforestation, so as to reap within the state, so that subsequent use of the grant,
the advantages of future provisions of the kind coming on-stream two years into the projection
started by the present Commission. horizon, is based on a detailed plan of action. Even
more importantly, from the point of view of the
12.30 The benefit externalities yielded by forests are
prospective ravages that climate change is feared
a function of a host of factors, including, but not
to bring, these working plans will provide a
confined to, the density of the forest and the bio-
benchmark data base to assess changes in forest
diversity contained within it. Ideally, the entitlement
cover over time. Each working plan will have the
of each state should have factored these in, in the
customary horizon of ten years. Such an approach,
form of data on the growing stock and its composition
when sustained, will provide incentives to better
by species, rather than, as we have done, by area
manage the existing forests and also to increase
under dense, moderate and open forests, as reported
forest cover.
by the Forest Survey of India (FSI) in the latest India
State of Forest Report (SFR-2009). Though the SFR- 12.32 Next to preservation of the forest wealth of
2009 does provide data on state-wise growing stock, the country, there is a paramount need to address
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environmentally adverse policies currently in place. for the reduction of Aggregate Transmission and
Where these originate at the level of national Commercial (AT&C) losses. Given this incentive
government, such as the fertiliser subsidy, scheme in place for correction of both technical and
correction can only happen at the national level. commercial inefficiencies within the system, albeit
There is every expectation that the Government of confined to urban centres, no further explicit
India will move to a nutrient-based subsidy incentives for enhancing power sector supply
configuration, which will have a salutary impact, not efficiency are included in our package of
only in terms of preventing further decline in soil environmental grants.
quality, but also on the quantum of fiscal resources
12.35 Apart from mispricing of electricity, with the
expended on the subsidy. The normative projection
several environmental risks attendant upon it,
of Union finances in Chapter 6 accordingly phases
reliance on coal-based thermal generation to the
down the fertiliser subsidy to a level in 2014-15
extent of 60 per cent of the total, is a major
which is approximately one-fifth of that budgeted
contributor to carbon dioxide emissions.
for 2009-10.
Additionally, Indian coal has a high ash content and
12.33 Several of the policy-related risks, however, studies have estimated the land required for
fall within the decision sphere of states in the Indian disposal of extracted ash at about one acre per mega
federal structure. Although this permits variation, watt (MW) of installed capacity. There are some tax
in principle, in the degree of risk across states, there incentives to private sector entrants for power
are surprisingly robust tendencies in place across generation from renewable sources, but no system
all states. In the paras following, each of the major of incentives in place for states to encourage clean
categories of policy risk at state level is examined power generation from renewable sources.
in turn, for amenability to incentivised correction.
Where there is already an incentive-configured 12.36 Thus, the second of our three environmental
scheme in place, among the centrally sponsored or grants is a forward looking incentive for generation
Central Plan Schemes (CPS), there is no add-on of grid electricity from renewable sources. The grant
incentive introduced by us. This is merely in order is so structured as to reward states for renewable
to avoid duplication and quite emphatically, not to generating capacity that comes on stream into the
de-emphasise the need for policy correction in grid during the first four years of our projection
that sphere. horizon. The reward falls due in fiscal year
2014-15, after having allowed enough time to states
12.34 In the pricing of electricity, over which states to respond to the incentive hereby recomended.
have full decisional latitude, political compulsions
have led to disregard, in many states, of the pricing 12.37 The perilous situation in terms of ground
structure recommended by state electricity water is, in part, a consequence of underpricing of
regulators. Some states have not revised their tariff electricity for agriculture, resulting in inefficient
structures for as many as seven years. In recognition overuse of a scarce natural resource. Additionally,
of the burden imposed by unrevised tariffs on state industrial output per cubic metre of water usage is
power utilities, which, in most states, are state- very low in comparison to international standards.
owned public sector undertakings with accounts There is no way by which prevention of further
independent of the state budget, states are required deterioration in ground water levels can be directly
under the Electricity Act of 2003 to compensate the incentivised, except in the form of a forward
utilities if tariffs imposed fall below those set by the incentive, based on data pertaining to groundwater
regulator, for any category of consumers. We have levels coming on stream during the projection
dealt in detail with the losses and funding horizon. Our discussions with the relevant
requirements of the power sector in Chapter 7. The authorities led us to conclude that data of this kind
Restructured Accelerated Power Development and do not become available with the regular periodicity
Reform Programme(R-APDRP) carries an incentive required for effective design of such a grant. There
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Thirteenth Finance Commission
is, however, an urgent need to correct such Ostrom, the Nobel laureate for Economics in 2009.
deterioration as has already occurred, in terms of
12.40 India has an elaborate legal framework of
watershed development to enhance groundwater
national laws for control of environmental
recharge. Since there are a number of central and
pollution. The overarching legislation in this context
Centrally Sponsored Schemes (CSS) in place to
is the Environment Protection Act of 1986, which
address these issues, no additional corrective
was a response to the Bhopal gas tragedy of 1984,
measure is built into our grant provisions.
the worst such industrial disaster in the world. The
12.38 Surface water irrigation is also in urgent need network of national laws is enforced and monitored
of policy correction. The problems here stem from by State Pollution Control Boards (SPCBs), but they
poor maintenance of irrigation networks, poor have, unfortunately, been unable to deliver
recovery of user charges from farmers which then enforcement in the manner and to the degree
feeds back into poor maintenance, and overstaffed expected of them. Over the years, a number of
irrigation administration departments such that national committees and study groups have
expenditure on irrigation does not deliver investigated the functioning of SPCBs. They have
commensurate benefits in terms of services identified a number of disabilities facing SPCBs, one
delivered. This then feeds back into poor collection of them being that their ambit in many states
compliance. The perverse incentive in the excludes vehicular pollution. There is also the major
crop-specific rate structure has already been alluded issue of inter-state pollution externalities, of which
to, in terms of encouraging cultivation of one example is untreated sewage deposited
water-intensive crops in water scarce regions. upstream in a river from a municipality falling in
the jurisdiction of another state. On balance, the
12.39 Thus, the third of our grant provisions is for
issue of pollution control, with its national legal
the purpose of incentivising states to establish an
structure, which requires inter-state as much as
independent regulatory mechanism for the water
intra-state enforcement, is one which is best left to
sector and improved maintenance of irrigation
the national government to co-ordinate and fund.
networks. With improved maintenance and
Our meetings with industry bodies in the states
delivery, simultaneous enhancement of recovery
suggest that Indian industry has yet to absorb the
is necessary for an input which is publicly
‘polluter pays’ principle. Unless this message is
provided, but is excludable and rival, and
internalised by Indian industry, pollution control
therefore, amenable to user charges that cover
will be seen as a needlessly obstructive, even unfair,
(normatively assessed) maintenance. Since so
element of the cost of doing business in India.
many of the problems in this sector stem from lack
SPCBs have to be seen as facilitative of the rights of
of systematic attention by technically qualified
the ordinary citizen and not as obstructive of the
people to the issue of the structure and level of user
rights of industrialists.
charges, the grant provision is conditional on
setting up by states of an independent Water 12.41 Policy risk to the environment is not
Regulatory Authority by 2011-12. The Maharashtra typically found at the local level, although there
Water Resources Regulatory Authority set up in are a few instances of this as well, as for example
August 2005 serves as a possible model for where municipal zoning laws are flouted and
consideration by other states. It is expected that buildings constructed on drainage channels,
an independent body of this kind would incentivise bringing disastrous consequences in the form of
water user associations that would self-regulate urban flooding during monsoons. With these
the use of water among members and decentralise exceptions, local bodies are not themselves
maintenance of water bodies, with funding locally responsible for policy-enhancing environmental
recovered from users, so improving compliance risk, although the neglect at the local level of
with cost recovery. In recommending these user sanitation, sewerage and solid waste removal and
communities we are in line with the work of Elinor processing carries grave environmental risks in the
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form of pollution of ground water, in addition to total forest area in the country falling in any
public health risks. particular state is clearly the first of the three. This
has been further enhanced for those states where
12.42 We have recommended a substantial
the share of forested area in the total area of the
increase in the grants to local bodies, linking these
state is greater than the national average. The
grants to a share of the previous year’s divisible pool
enhancement serves to add a further compensation
(Chapter 10). One of the reasons for this enhanced
for the economic disability posed by forest cover.
level of funding is to enable local bodies to address
The entitlement of each state, so obtained, has been
mitigation of environmental risks. There are no
further weighted by the third factor, which is the
usage conditionalities attached to local grants in
quality of the forest in each state, as measured by
that chapter, since certification of usage has been
found to act as an obstruction to the regular flow to density. The weights are progressively higher for
local bodies of funding provisions made by previous area under moderately dense and dense forest
Commissions. Although there are no strictures cover. All data on forested area and on density, are
imposed on usage, it is hoped that the considerably as defined and quantified in SFR-2009 (data
enhanced funding for local bodies will address the pertaining to 2007). Thus, the inter se allocation of
woefully inadequate sanitary conditions that prevail forest grants within all states is given by the
over the majority of human habitations in the following formula:
country.
12.43 Finally, although our grant for renewable
energy generation is targeted at state-level on-grid
capacity, local bodies have a variety of small-scale
technological options for off-grid generation of Where
renewable energy. These could even feed into the Gi: Share for state i
grid. There is the oft-cited example of the 350- Ai: Geographical area of state i
kilowatt windmill established by the Odanthurai Fi: Total forest area of state i
Village Panchayat in Coimbatore district of Tamil Mi: Moderately dense forest area of state i
Nadu. The windmill generates 7.5 lakh units of Hi : Highly dense forest area of state i
power annually, of which the panchayat uses 4.5
lakh units, while the rest is sold to the State
Electricity Board (SEB) grid for an annual income
of Rs. 19 lakh to the panchayat. These conditions, 12.46 We have allocated a grant of Rs. 5000 crore
however, may not be replicable everywhere. What for this purpose. The year-wise allocation and state
this example demonstrates is that the several shares in the total are given in Annex 12.2.
funding provisions made by this Commission enable
12.47 Grants for the first two years are untied.
states, in partnership with local governments, to
However, priority should be given to preparation
manage their ecology and environment in a manner
of working plans for all forest divisions in the state.
consistent with sustainable and inclusive
For the remaining three years of the award period,
development.
the release of the grant within a state’s entitlement
12.44 The following section deals with the specific is linked to the number of approved working plans.
grants recommended by us in the three critical areas Of the total released, 75 per cent can be used by
highlighted in the preceding paras. states for development purposes. The remaining 25
per cent of the grants in these three years is for
Forest Grants preservation of forest wealth and is meant to be an
12.45 The forest formula has been designed to take additionality to the states’ budget for development
into consideration three factors. The share of the of forestry and wildlife. Release of grants in the last
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Thirteenth Finance Commission
three years of the award period shall be subject to reluctant to encourage more development.
the following release and monitoring mechanism: This is particularly true in the case of wind.
i) The grants shall be linked to progress on ii) Several states have small or negligible
approval of working plans. The entire potential.
amount should be released after approval of
iii) The consuming states are located far from
more than 80 per cent of the working plans
the generating states. Access to markets in
of the state. Till this is achieved, releases
the consuming states is an issue.
shall be in the ratio of number of working
plans approved to 80 per cent of the number iv) Even as the law requires setting of
of working plans for the state. Renewable Purchase Obligations (Section 86
of Electricity Act, 2003), there is no national
ii) Twenty-five per cent of the grants shall be
level target that has been set. However, at
over and above the non-plan revenue
the state level, some State Electricity
expenditure (NPRE) projected in Annex 12.3
Regulatory Commissions (SERCs) have
and the same shall be monitored as
explained therein. initiated action in this regard and these
Renewable Energy Obligation targets are
12.48 The Ministry of Environment and Forests being set at the state level.
(MoEF) shall assign to the Forest Survey of India
the task of developing a uniform inventory design v) The costs of renewable energy sources are
for information on growing stock and related often higher than those of conventional
parameters like bio-diversity and Non Timber sources. This results in reluctance of cash-
Forest Produce (NTFP) as well. This would help strapped state utilities to procure from these
bring clarity to the role of the country’s forest wealth sources.
in climate change mitigation and also help to base 12.52 To overcome these difficulties, we have
fiscal transfers on more robust parameters in future. proposed the following guidelines for
12.49 Large forest areas in many of the north- implementation of the incentive scheme, with the
eastern states are privately/community owned. The objective of broad-based development of renewable
respective State Governments should play the role energy sources across states.
of facilitator in the management of these forests i) The incentive is to be based on states’
through the working plans. achievement in renewable energy capacity
addition in MW from 1 April 2010 to 31
Incentive for Grid Connected
March 2014.
Renewable Energy
ii) The incentive component will comprise of
12.50 The power sector has great potential for
two sub-components:
reduction of greenhouse gases. There is, hence, a
need to incentivise states to promote clean energy. a) Incentive for achievement in installed
With this objective, we recommend an incentive capacity addition (over a four-year
grant for generation of grid electricity from period) relative to unachieved
renewable sources. We have allocated Rs. 5000 potential. This will be accorded a
crore for this purpose. weightage of 25 per cent. This factor
has been considered in view of the
12.51 The grant is configured after taking into
fact that renewable energy potential
consideration the following issues:
is unevenly distributed. The following
i) Renewable resources are limited to certain formula has been used:
states. Often the states achieve a certain
threshold of capacity and are, thereafter,
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Chapter 12: Grants-in-Aid
For a particular state whose total achievement in vii) Transmission charges and losses applicable
installed capacity of renewable energy as on 31 for renewable energy targets are not to
March 2009 equals or exceeds its total potential of exceed a level of Rs. 0.25/kwh and 5 per cent,
renewable energy, we assign the same figure as that or, the state transmission utility should have
of the state which will achieve the highest capacity implemented rational alternate transmission
addition as percentage of total unachieved capacity pricing frameworks (including point of
between 1 April 2010 and 31 March 2014. connection tariffs) if so recommended by
the CERC, within 12 months of such
b) Incentive for achievement in installed recommendation.
capacity addition (over a four year
period) relative to the aggregate of 12.53 Upon submission of the details on
installed capacity addition across all achievement of results by the states to the Ministry
states. This will be accorded a weight of Finance, GoI, the ministry may seek validation
of 75 per cent, in order to ensure of the data from MNRE before the incentives are
accelerated capacity addition. The disbursed. Validation would be based on publicly
following formula has been used: available information on achievements and
adequate proof of the policy measures required to
be implemented.
12.54 The incentives proposed by us for
iii) We recommend a cap on the incentive
grid-connected renewable energy generation will be
reward in the following manner:
over and above the existing incentives by the
a) A cap of Rs. 1.25 crore/MW of Xi for Central and State Governments. A sample of
general category states. calculations for assumed levels of Xi is given in
Annex 12.4.
b) A cap of Rs. 1.50 crore/MW of Xi for
special category states, to account for
Grants for Water Sector Management
factors related to access and
consequent cost disability. 12.55 Injudicious inter-sectoral and intra-sectoral
distribution of water amongst various categories of
iv) The performance review will be based on
water users, low water use efficiency, fragmented
data published by the Government of India
approach to water resources planning and
on capacity addition by states.
development, low water user charges and meagre
v) The achievement in installed capacity recovery are some of the major problems associated
addition may be on account of any/all with the management of water resources in the
renewable energy sources of electricity country. A statutory autonomous institution at the
generation (namely, wind, biomass, small state level could help in addressing these issues.
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Thirteenth Finance Commission
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Chapter 12: Grants-in-Aid
217
Thirteenth Finance Commission
identity will also enable the poor and their inclusion into the UID programme.
underprivileged to leverage other resources like Additionally, State Governments will be required
bank accounts, cell phones, which can empower to make significant investments in infrastructure
them and catalyse their income growth. These and logistics to collect the biometric data, verify it
benefits cannot be accessed by them presently due with the CIDR and issue the respective ID cards
to their inability to provide acceptable incorporating the biometric features.
identification. The initiative to provide unique IDs 12.68 We believe that there is a strong case for
has the potential to significantly improve the incentivising states to enrol such of their residents
governance and delivery framework of public who participate in welfare schemes within the UID
services while substantially reducing transaction programme. Such support could be utilised by the
costs, leakages and frauds. state, either to directly subsidise residents who
12.65 We believe that support to the initiative for participate, or to provide better facilities for
creation of unique, biometric-based identities will enrolment to residents such that their cost of
trigger significant improvement in outputs and participation is lowered.
outcomes. The Unique Identification Authority of 12.69 We propose to incentivise issue of UIDs only
India (UIDAI) plans to issue identities to at least to those people below the poverty line who are
600 million residents of India by 2014. Their aim is beneficiaries of public welfare schemes like the
to co-opt central and state governments and other National Rural Employment Guarantee Scheme
agencies like banks as registrars, who would process (NREGS) and PDS. The state-wise list of number
the UID applications, connect to the Central ID Data of persons below the poverty line (Uniform Recall
Repository (CIDDR) to be managed by the UIDAI, Period : 2004-05) as published by the Planning
confirm the uniqueness of each applicant and Commission is placed in Annex 12.9.
receive a UID number from UIDAI, which they
12.70 We propose that an incentive of
would then allot to the applicant.
Rs. 100 per person (effectively Rs. 400-500 per
12.66 There will be two categories of registrars. family) would be adequate for incentivising citizens
One category will comprise banks, insurance below the poverty line to register for the UID. We
companies, income tax departments and passport recommend a grant of Rs. 2989.10 crore to be given
offices, with whom prospective clients will have a to State Governments in this regard.
strong incentive to register, because of the benefits
12.71 The UID grant for State Governments as
that will accrue to them. The identity seekers, in
indicated in Annex 12.9 would be disbursed subject
such cases, will largely be above the poverty line and
to the following scheme:
willing to seek a UID and bear its costs.
i) States may use this grant either to directly
12.67 The second category of registrars will be the
assist the intended beneficiaries or create
State Government departments implementing
convenient facilities for them such that the
programmes like the Public Distribution System
cost of registration of beneficiaries is
(PDS) and the Rashtriya Swasthya Bima Yojana
minimal.
(RSBY). These programmes cater to people below
the poverty line. Such people may already be ii) The assistance, if provided, will be restricted
availing the benefit of these schemes and may see to beneficiaries of NREGS, RSBY, PDS,
no immediate benefits for them or for their family old-age pensioners and other welfare
members in registering for a UID. Further, there schemes of the State and Central
would be some cost involved in terms of all the Governments targeted at persons below the
members of a family travelling to the place of poverty line.
registration, as well as the opportunity cost of their iii) The grant will be released in five annual
time. This may be a disincentive and may hinder instalments, with two tranches per year, on
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Chapter 12: Grants-in-Aid
1 July and 1 January of each year. The first indicators, as determined from the SRS bulletin/
tranche, amounting to one-tenth of the statistical report for the succeeding years will be
state’s allocation shown in Annex 12.9 will measured from the base line.
be released on 1 July 2010 without any
12.74 The states are at different levels of
conditions. All subsequent instalments will
achievement in respect of these parameters. The
be released on a reimbursement basis as per
Administrative Staff College of India (ASCI)
the following procedure. The UIDA will
Hyderabad, in its study on improving outcomes
certify the number of persons from those
sponsored by this Commission, pointed out that
mentioned in (ii) above who have been
bringing about improvement from a higher base is
registered in that state and included in the
often more difficult and requires more effort than
CIDDR. The eligibility of a state will be
bringing about improvement at from a lower base.
computed on the basis of a grant of Rs. 100
Keeping this in mind, ASCI suggested that reward
for every UID issued from that state and
for performance in such cases should be based upon
included in the CIDDR. The amount paid
a formula with two components: the first
earlier will be deducted from the entitlement
component is to reward positive movement in the
so computed and the balance will be released
value of the parameter and the second component
as that tranche.
is to provide a premium if such change is made
above the median value of the parameter for all
Incentive for Reducing Infant Mortality
states. Thus, states are rewarded both for
12.72 A major challenge for this Commission has improvement in the parameter as well as the level
been the possibility of inducing change through the at which the improvement is made. The
use of forward looking criteria. Traditionally, Commission has accepted the formula proposed by
Finance Commissions have used historical data for ASCI, details of which are placed in Annex 12.10.
measuring devolution criteria, resulting in the Each state’s eligibility will be determined annually,
creation of a system of rewards and punishment for based upon improvement in the IMR index. We
past behaviour, which locks a state’s entitlements recommend an amount of Rs. 5000 crore for this
for the next five years, irrespective of its grant over a three year period between 2012 and
future performance. FC-XII, through its 2015. Details of scheduling of this grant are placed
recommendations, incentivised fiscal reform. We at Table 12.5 below.
recognise that the area where change is sought to
Table 12.5: Scheduling of IMR Incentive Grant
be promoted and the data used to measure it must
find acceptance with all stakeholders. In our view, Year Amount Calendar Year Year of Release
incentivising states to improve their Human (Rs. crore) of Measurement of SRS report
Development Indicators (HDIs) is desirable. Within 2010-11 Base Line 2009 2010
the HDIs, we propose to focus on improvement in 2012-13 1500 2011 2012
the Infant Mortality Rate (IMR). Unfortunately, the 2013-14 1500 2012 2013
2014-15 2000 2013 2014
proposed Census in 2011 cannot be used as a data
source. This is because the record date for the 12.75 Data pertaining to 2009-10, which will be
Census will be 1 March 2011, providing little lead available in 2010 will be the base line for computing
time to the states. We, therefore, propose to use eligibility for all the succeeding years. Disbursal of
results of the survey under the Sample Registration grants will commence from 2012-13. This will give
System (SRS) conducted annually by the Registrar the states a period of two years to make
General of India (RGI). improvements. During 2012-13, the cumulative
12.73 The SRS measuring IMR for 2009 will be change in IMR between the years 2009, 2010 and
the base line from which improvement of each state 2011 for each state will be applied to the formula in
will be measured. The annual improvement in these Annex 12.10. For 2013-14, the cumulative change
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Thirteenth Finance Commission
between 2009 and 2012 will be applied to the functions. A number of courts in each state are
formula. The same procedure will be followed for housed in heritage buildings, which reflect the
succeeding year. A simulated calculation applying cultural heritage of the areas. It is proposed that a
this formula is placed in Annex 12.11. The grant will grant be provided for maintaining these buildings.
be released in three annual instalments between
12.79 The Commission, after careful consideration
2012-13 and 2014-15 after the publication of the
has agreed to support the proposals made by the
annual SRS bulletin/report incorporating state-
Department of Justice by approving a grant of
wise IMR statistics for the relevant year as shown
Rs. 5000 crore to be allocated as describe below.
in Annex 12.11.
These allocations may be released in two annual
instalments subject to accounts being maintained
Improving Justice Delivery
and Utilisation Certificates (UCs)/Statements of
12.76 The improvement of justice delivery is a Expenditure (SOEs) provided as per General
critical component of the initiative to ensure better Financial Rules (GFR 2005).
outputs and outcomes. This can be done by
12.80 Operation of morning/evening/special
supporting the judiciary, while simultaneously
judicial-metropolitan magistrate/shift courts: The
strengthening the capacity of the law enforcement
present 14,000 district and subordinate courts in
arm. We discuss here the support required to
the country are disposing off both important as well
improve judicial outcomes. There are over 3 crore
as petty cases. The pressure on judicial time on
cases pending in various courts in the country today.
account of the petty cases can be relieved by
At the very least, current filings need to be disposed
allotting them to morning/evening courts/courts of
off, to prevent accumulation of arrears. The
special judicial/metropolitan magistrates. These
enormous delay in disposal of cases results not only
courts will be staffed either by the regular judiciary
in immense hardship, including those borne by the
on payment of additional compensation, or by
large number of under-trials, but also hinders
retired officers. The morning courts in Andhra
economic development.
Pradesh and the evening courts in Gujarat have
12.77 The Department of Justice has identified a demonstrated the feasibility of such models. It is
number of initiatives which are part of this action expected that about 14,825 such courts can dispose
plan and need support. The first is increasing the off 225 lakh pending as well as freshly filed cases of
number of court working hours using the existing a minor nature within a year. This aggregates to
infrastructure by holding morning/evening/shift 1125 lakh cases over the period 2010-15. An amount
courts. The second entails enhancing support to Lok of Rs. 2500 crore is being provided to facilitate
Adalats to reduce the pressure on regular courts. setting up of such courts, which has been allocated
The third initiative involves providing additional to each state in accordance with the number of
funding to State Legal Services Authorities to enable sanctioned courts.
them to enhance legal aid to the marginalised and
12.81 Establishing ADR centres and training of
empower them to access justice. The fourth is
mediators/conciliators: Section 89 of the Civil
promoting the Alternate Dispute Resolution (ADR)
Procedure Code provides for settlement of disputes
mechanism to resolve part of the disputes outside
outside courts through mediation, conciliation,
the court system. The fifth is enhancing capacity of
arbitration or through Lok Adalats. We feel that the
judicial officers and public prosecutors through
scope of this section needs to be tapped fully to
training programmes. The sixth relates to
reduce the pressure on the courts system. At
supporting creation of a judicial academy in every
present, mediation and conciliation centres are
state to facilitate such training.
being set up at the High Court level, but there are
12.78 The department has also proposed creation few centres at the district level. Apart from
of the post of Court Managers in every judicial investment in physical infrastructure, judges and
district to assist the judiciary in their administrative advocates need to be trained as mediators/
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Chapter 12: Grants-in-Aid
conciliators in each judicial district. The Justice provision of additional support for these initiatives.
Department has proposed that one ADR Centre be A provision of Rs. 250 crore for the period 2010-15
set up in each judicial district of the country at an has been made and allocated to states in proportion
estimated cost of Rs. 1 crore per district. It has also to the number of courts in their jurisdiction.
proposed that 100 judicial officers and advocates
12.85 State Judicial Academies: The main vehicle
be trained in each district over a period of five years
for training judges is the State Judicial Academy.
to act as mediators/conciliators to provide the
While some state judicial academies are well
necessary services to the litigants at an estimated
equipped, most have little infrastructure and few
cost of Rs. 0.25 lakh per person. This scheme would
facilities. It is necessary to support the state judicial
require an estimated amount of Rs. 600 crore for
academies to enable them to operate programmes
setting up of ADR centres and Rs. 150 crore for
throughout the year to promptly complete the
providing training over a period of five years. These
training of judges and reduce vacancies. We propose
amounts have been allocated to the states in
an amount of Rs. 15 crore per High Court for the 20
proportion to the number of judicial districts within
High Courts, which works out to Rs. 300 crore.
their jurisdiction.
These funds may be utilised for creation of new
12.82 Lok Adalats: We are providing a grant of academies in states where they do not exist, or for
Rs. 20 crore per year as support to hold about 10 providing additional facilities where they do exist.
mega Lok Adalats per High Court per year and Three High Courts cover more than one state. The
about five Lok Adalats for each of the 1500 court release for Guwahati Judicial Academy (which
locations per year. It is expected that this would covers the North-East) is proposed to be made
enable about 15 lakh cases to be disposed off per through the Government of Assam. The release for
year – a total of 75 lakh cases for the five-year period Mumbai Judicial Academy (which covers
2010-15. The total grant of Rs. 100 crore has been Maharashtra and Goa) is proposed to be made
allocated amongst State Governments based upon through the Government of Maharashtra. The
the number of courts. release for Chandigarh Judicial Academy (which
covers Punjab and Haryana) is proposed to be made
12.83 Legal aid: Provision of legal aid is an
through the Government of Punjab.
important measure to assist the marginalised
sections of the populace in accessing the justice 12.86 Training of public prosecutors: Given the
system. The National Legal Services Authority fact that the government is a major litigant, poor
(NALSA) and State Legal Services Authorities quality of prosecution is often one of the main
(SALSAs) have the responsibility to provide legal reasons for delay in disposal of court cases where
services to eligible persons. However, their present the Government is a party. Presently there are
resources do not match up to the requirements. To inadequate facilities for training of Public
strengthen their efforts, we propose that Rs. 200 Prosecutors. A provision for training of 2000 Public
crore may be earmarked for providing legal aid over Prosecutors in the country at an estimated cost of
five years. The amount has been allocated to the Rs. 1.5 lakh per Prosecutor has been made. An
states in proportion to the number of courts in their amount of Rs. 150 crore for the period 2010-15 has
jurisdiction. With this, we expect a decline in the been sanctioned for this purpose, which has been
number of under-trials in the courts. allocated to states in proportion to the number of
courts in their jurisdiction.
12.84 Training of judicial officers: Capacity
building in the judiciary is a critical need. At present, 12.87 Creation of posts of court managers:
judicial officers are trained in the State Judicial Enhancing the efficiency of court management
Academies for one year after their induction and would result in improving case disposal. Providing
thereafter, in-service training programmes are support to judges for performing their
organised to further build their capacity. Such administrative duties would allow them more time
programmes need to be accelerated through for their judicial functions. Adopting an innovative
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Thirteenth Finance Commission
We recommend that at the district level, only 90 district level and setting up a data base for State
per cent of the cost be met from the District Government employees and pensioners.
Innovation Fund and the balance 10 per cent from
non-governmental contributions – from either the Improving Statistical Systems in
public or NGOs. This amount must be collected and State Governments
deposited with the district agency before the scheme 12.98 A number of steps have been taken to
is sanctioned. State Governments could prepare strengthen the statistical system in the country. The
guidelines for the scheme using the basic template National Commission on Statistics (NCS) was set
indicated above, while allowing freedom of choice up to comprehensively steer the growth of the
to the districts. We propose to allot a sum of Rs. 1 statistical system in the country and oversee all
crore to every district in the country to be used in initiatives for its growth. The National Strategic
the manner stated above. Each State Government Statistical Plan (NSSP) 2008 sets out the medium
will be entitled to its eligible amount as per Annex term strategy for empowering the existing statistical
12.14 in two instalments The first instalment will framework to produce comprehensive good quality
be released in 2011-12 after the State Government relevant economic and social data for policy and
finalises detailed guidelines for implementation of decision making. The India Statistical Project (ISP)
the scheme and notifies the authority at the district focuses on strengthening the statistical capacity of
level which would sanction the projects under the all states and Union Territories. In particular, they
scheme. The second instalment would be released are being encouraged to effectively meet the
after the State Government submits a report on the national minimum standards with regard to twenty
end use of the first instalment detailing the benefits key statistical activities.
created. The districts in the state could be covered
in two phases if the State Government so desires. 12.99 Despite these impressive achievements, a
number of important issues remain to be addressed.
To generate competition, if some districts come up
These are outlined below:
with more innovative projects for support, then
unutilised funds from the remaining districts can i) FC-XII noted the need to measure Gross
be reallocated to them. State Domestic Product (GSDP) at market
prices consistent with national estimates,
12.96 We propose a grant of Rs. 616 crore for this
instead of at factor cost, as is presently being
scheme. The state-wise allocation based upon the
done. This is still not available. Further, the
number of districts in each state is placed in
measurement of GSDP across states should
Annex 12.14.
be standardised such that use of comparable
Improving Transparency in GSDP series by the Finance Commission and
Government Accounts other bodies is made redundant.
12.97 Transparency in government accounts ii) This Commission has elsewhere made
improves the feedback loop, reflects the fiscal recommendations on the need to
impact of all policy initiatives and enhances incorporate environmental considerations
accountability, thus ensuring greater productivity. into government policy. As part of this effort
the estimation of Green GDP/GSDP would
We discuss separately various initiatives to aid
be very valuable. Such an estimate would
transparency in Central and State Government
account for depreciation of natural assets
accounts, including accrual accounting,
and consider loss of income due to
maintaining consistency in financial accounts
environmental degradation.
across states and improving audit mechanism. In
the following paragraphs, we discuss two specific iii) Comparable estimates of district income are
initiatives for enhancing the quality of data– extremely relevant for measuring intra-state
strengthening statistical systems at the state and income disparities. This will enable State
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Governments to effectively plan policy and 12.102 The grant will be drawn down in five annual
programme interventions. They could also instalments. The first instalment will be drawn
be used as a parameter for horizontal down only after the state submits an expenditure
distribution of fiscal transfers. As many as plan for the entire grant. All subsequent instalments
23 states have generated district income will be drawn down after submission of UCs/SOEs
statistics for the period 1999-2000 to for the previous instalments. States are provided
2005-06. For these to be usable, all states the flexibility to modify their expenditure plan at
should generate this data in accordance with any time.
the guidelines of the Central Statistical
Organization (CSO). They also need to be Setting up a Data Base for Government Employees
validated at the national level to ensure and Pensioners
comparability. 12.103 Though direct and indirect employees of
iv) For equitable horizontal distribution, the State Governments form less than 6 per cent of the
measurement of cost disabilities is paid workforce and roughly 2 per cent of the
important. The cost of services varies across country’s population, aggregate payments towards
states due to a large number of factors such salaries, lump sum terminal benefits (commutation,
as geographic location, population size and gratuity, leave encashment) and monthly pensions
distribution and demographic amount to about 32 per cent of the states’ total
characteristics. Further, to estimate cost revenue expenditure and 67 per cent of the states’
disabilities of states, two types of data are own tax revenue for 2008-09 (BE). Between 1990-
required: (a) quantifiable measure of the 91 and 2008-09, these costs grew at a compounded
level of various services available in different annual growth rate of 17 per cent across states. The
states and (b) the corresponding unit cost. impact of the implementation of the
As of now, such data are not available. recommendations of the Sixth CPC has been
estimated by us in Chapter 7, as 35 per cent.
v) Measurement of inter-regional trade data
However, accurate assessment of the impact of such
would be useful to provide insights in an
shocks can be made only if data on the number of
inter-regional framework.
employees and pensioners, their salary and pension
12.100 We recommend that the Ministry of payable and their demographic profile is available.
Statistics take steps to fill in the statistical gaps Only if the state can estimate and project its liability
outlined above. To ensure that the National on account of salary and pensions into the future
Strategic Plan is implemented effectively, this can it effectively plan to restrain it and commit
Commission recommends grant assistance to State expenditure towards development outlays. This
Governments, which should be utilised by them to exercise cannot be undertaken without the state
fill in infrastructure gaps. creating and regularly maintaining an accurate
employee and pensioner data base. The
12.101 At least 75 per cent of the grant will be
Commission sponsored a study on ‘Building
utilised for strengthening statistical infrastructure
Employee and Pension Data Bases and MIS for
at the district level not covered by the India
Effective Fiscal Planning by State Governments’
Statistical Project and the proposed CSS pertaining
which analyzed this issue. The preliminary
to Basic Statistics for Local Level Development. A
recommendations of the study were discussed at a
maximum of 25 per cent of the grant can be used
State Finance Secretaries’ conference held in New
for improving statistical infrastructure at state
Delhi on 30 July 2009. The study report has been
headquarters. States will be eligible for Rs. 616 crore
published on the Commission’s website.
in the aggregate, with Rs. 1 crore being provided to
every district. State-wise eligibility for this grant is 12.104 The study recommends that all states set up
placed in Annex 12.14. employee and pensioner data bases and put in place
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Thirteenth Finance Commission
frameworks which enable their accurate pension from the consolidated fund, either directly
maintenance on a continuous basis. It points to the or indirectly through grants, should be included in
need for the data base to be constructed in a format such a data base. Employees of local governments
which enables aggregation at state level as well as should be distinctly identified. We recommend that
at the national level. This would require that all a grant of Rs. 10 crore be provided to each general
states adopt a reasonably similar definition of an category state and Rs. 5 crore to each special category
employee and use a standard minimum content for state to set up an employee and pensioners data base.
the data base. We recommend that states adopt a 12.109 The data base should be designed to allow
data base which will enable capture of this data at for subsequent extension to include other financial
the minimum. Two data bases need to be built for benefits (including GPF, insurance and health
pensioners, one for those drawing pension under benefits) to employees as well as payment of defined
the defined benefit scheme and the other for those benefit pensions and family pensions
who have enrolled under the new defined
contribution scheme. This New Pension Scheme 12.110 All states who wish to set up this data base
(NPS) data base will contain not only employees’ will be able to draw down Rs. 2.50 crore during
data, but will also include details of contributions 2010-11 without any precondition to commence
and accumulations accounting, as well as a facility work. We expect the work to be completed in three
for providing information to the account holder on years. The balance, Rs, 7.50 crore, will be released
balances in the account. after the state certifies that it has created a data base
which provides at least the data mentioned in Annex
12.105 The challenges facing the implementation 12.15 and that this has been functionally integrated
of the NPS have been outlined in Para 7.122. The with the treasury on a transactional basis. The states
proposed data base will enable speedier should also confirm that they will be able to provide
implementation of the NPS as it will provide the to the Fourteenth Finance Commission projections
basis for payroll linked deduction and transfer of for salary and pension expenditure based upon such
contributions to the service providers. a data base. States who have already taken such
12.106 A data base for employees, pensioners and steps can be provided their entire allocation (Rs.
family pensioners will prepared, along with a central 10 crore or Rs. 5 crore, as the case may be) as soon
Management Information System (MIS) and data as they declare their eligibility in the manner
management system. Ideally, this should be prescribed above. We also urge the Government of
integrated with an electronic payroll and pension India to initiate a parallel effort for preparation of
payment system to facilitate error-free and real time a data base for its employees and pensioners.
updates.
Grants for Maintenance of Roads
12.107 These data bases should be built on a and Bridges
common foundation across all states, viz. a
minimum number of uniform financial and 12.111 Till FC-XI, the Commissions assessed the
needs of the states for maintenance of roads as part
demographic data fields for comparability of
of their non-plan revenue expenditures. FC-XII,
expenditure data. A suggested template is placed
recognising the importance of proper maintenance
in Annex 12.15. States are, however, free to include
of roads, recommended a specific grant for this
additional data fields to meet their specific
purpose. Many states, in their memoranda to us,
requirements while creating their data bases. States
have requested for continuance of this grant. We
may like to keep in mind the suggested model for
have noted the increased expenditure undertaken
data base creation provided in Chapter 5 of the study
by the states for the maintenance of roads and
report published on the Commission’s website.
bridges post-grants and recognise the fact that a
12.108 All employees, pensioners and family vital infrastructure such as roads should not suffer
pensioners who are eligible for a defined benefit due to poor maintenance. We have, therefore,
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Chapter 12: Grants-in-Aid
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Thirteenth Finance Commission
vi) Setting up and strengthening of skill- forces of Left Wing extremist-affected states.
building institutions to help provide The Government of AP has requested funds
employable skills. to strengthen the training facilities at
Premavathipet, Hyderabad and at the
vii) Meeting the training requirements of police
regional headquarters in Vishakapatnam.
personnel at various levels.
We recommend an amount of Rs. 13 crore
12.117 The state-wise details of grants-in-aid for this purpose.
recommended for needs that are specific to each
ii) The state has also requested funds for
state are given below:
upgradation of the Police Training College
Andhra Pradesh at Warangal, shifting of the old Police
Training College from Amberpat to Medak
Providing Drinking Water in Rural Areas and establishing a new Police Training
12.118 The Government of Andhra Pradesh College at Karimnagar. We recommend an
requested grants for provision of drinking water in amount of Rs. 100 crore for this purpose.
rural areas on two counts:
Construction of Prisons
i) The State Government has highlighted
problems of water quality in the fluoride 12.121 The state has sought a grant for
affected areas of Andhra Pradesh. Several construction of prisons owing to shortage of
schemes have been undertaken for capacity. We recommend Rs. 90 crore for this
improvement of water quality using grants purpose.
from FC-XII and the state’s own resources.
Development of Culture
The government has now sought additional
funds to improve water quality in saline 12.122 Grants requested by the State Government
affected areas. We recommend an amount for development of culture are as follows:
of Rs. 350 crore in this regard.
i) The state has sought funds to preserve,
ii) Funds have also been requested for provision protect and propagate the composite culture
of drinking water in inaccessible tribal areas. of India. We recommend an amount of Rs.
We recommend an amount of Rs. 200 crore 40 crore for this.
for this purpose, with the proviso that this
ii) We further recommend an amount of Rs. 20
grant may be utilised only for new schemes.
crore for the establishment of ‘Shilparamam’
at Vijayawada, Nellore, Anantpur and
Seed Bank Scheme
Warangal.
12.119 The state has sought an allocation to
increase production of seeds by replacing old Fire and Emergency Services
machinery, providing new processing and storage
12.123 The state has represented for an allocation
facilities and upgradation of seed testing
to strengthen Fire and Emergency Services by
laboratories. We recommend an amount of Rs. 100
providing essential equipment to convert the service
crore for this purpose.
into a multi-hazard response unit. We recommend
a grant of Rs. 17 crore on this account.
Police Training
12.120 Grants for police training in the state have Heritage Conservation
been requested as follows:
12.124 The state has requested a grant for works
i) The Greyhounds Regional Training Centre related to conservation, restoration and
imparts specialised training to the police preservation of 560 protected ancient sites and
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Chapter 12: Grants-in-Aid
historical monuments as well as for improvement remote and border areas, stating that new centres
and modernisation of its museums. We recommend are currently functioning out of temporary office
an amount of Rs. 100 crore for this purpose. accommodation. Keeping in view the need to extend
and improve the reach of administration in remote
Establishment of Primary Health Centres and border areas, we recommend an amount of
12.125 The memorandum from AP indicates a gap Rs. 75 crore for this purpose.
in the number of primary health centres (PHCs) and
Strengthening of Law Enforcement and Public
the imperative to create the necessary facilities for
Security in Remote Areas
improved provision of rapid, qualitative health and
medical services, especially in rural areas. We 12.129 It has been stated in a supplementary
recommend a grant of Rs. 200 crore to set up new memorandum that lack of infrastructure in remote
PHCs. administrative headquarters hampers the quality of
security and maintenance of law and order. The
Strengthening the Pollution Control Board state has sought a grant for construction of police
stations with lock-ups, Type-II buildings and
12.126 The state has requested a grant of Rs. 20
bachelor barracks in 67 remote administrative
crore to strengthen the Andhra Pradesh Pollution
headquarters. We recommend an amount of Rs. 70
Control Board by providing air and water
crore for these works.
monitoring equipment and the capital cost
of establishing monitoring systems. We support this
Repair of Suspension Bridges
request.
12.130 The memorandum from Arunachal
Establishment of a Centre for Innovations in Pradesh has highlighted the importance of
Public Systems suspension bridges for connectivity in hilly and
remote areas of the state. The State Government
12.127 In order to create a climate for accelerating
has requested a grant for renovation of 81 identified
and diffusing innovation in public systems through
suspension bridges which require immediate
sharing of experiences across states and to facilitate
attention. We recommend an amount of Rs. 30
the establishment of institutional and human
crore for this purpose, as requested by the State
capacities for innovation through knowledge
Government.
sharing and mobilisation of practical help, we
recommend an amount of Rs. 20 crore to establish
Construction of PDS Godowns
a Centre for Innovations in Public System (CIPS)
at the Administrative Staff College of India (ASCI), 12.131 As requested by the State Government, we
Hyderabad. The Centre will be governed through recommend Rs. 15 crore for construction of Public
an advisory council, with representation from all Distribution System (PDS) godowns at vulnerable
states. A Steering Committee will assist states to locations, viz. Santipur (Kangkong), Longding,
transform creative ideas into sustainable practices. Daporijo, Kalaktang, Thrizino, Zemithang, Boleng
(refer to Para 12.92) and Kibitho to ensure transportation and storage
of essential commodities for the PDS.
Arunachal Pradesh
Preservation of Archaeological and Historical Sites
Infrastructure Creation for Newly Created in the State
Districts and ADC Headquarters
12.132 The state has sought funds for preservation
12.128 The state has asked for a grant towards and development of various archaeological and
creation of infrastructure facilities for three newly historical sites, for which we recommend a grant of
created districts and 16 new ADC headquarters in Rs. 10 crore.
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Thirteenth Finance Commission
Infrastructure Development in Tawang District 12.140 The State Government has requested a
grant for improvement of tourism infrastructure
12.136 The state has highlighted that the border and for implementation of the state tourism policy.
blocks of Jang-Thingbu, Mukto and Lumla Tawang We recommend an amount of Rs. 50 crore for this
District do not have the desired infrastructure due purpose.
to difficult conditions. The district is fast emerging
as a tourist destination and the State Government Police Housing
has sought a grant to improve sanitation, drainage
12.141 The State Government has highlighted the
system, porter tracks, roads and housing in remote
shortage of police housing in the state and requested
blocks of the district situated along the international
funds for adding to the housing stock. For the civil
border. We recommend an amount of Rs. 25 crore
works/infrastructure development the State
for this purpose.
Government has sought an amount of Rs. 971.13
Assam crore. We recommend an amount of Rs. 15 crore
for construction of junior staff quarters in hills/
Border Area Development remote areas and Rs. 35 crore for construction of
12.137 The state memorandum mentions that the junior staff quarters in other areas.
areas along the international borders are largely
Police Training
forested and extremely underdeveloped in terms of
basic facilities such as water supply, roads, bridges and 12.142 In order to make up the shortfall in training
electrification. Substantial funds have been requested facilities, the State Government has sought funds
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Chapter 12: Grants-in-Aid
12.145 In their memorandum the State Interlinking of Rivers for Prevention of Floods
Government has explained that as a consequence
12.149 The State Government has requested funds
of bifurcation of the state, Bihar no longer has a
for Burhi Gandak-None-Baya-Ganga link. This link
police academy. It proposes to set up such an
envisages diversion of 300 cumecs of flood water (i.e.,
academy at Rajgir for which land has been allotted.
partial quantity of flood discharge) of Burhi Gandak
The State Government has requested funds to set
river to the Ganga through linking the None and the
up this academy which will cater to Deputy
Baya rivers so that flood damages in the lower reaches
Superintendents of Police, Sub-Inspectors and
of the Burhi Gandak basin area falling under
other ranks. We recommend a grant of Rs. 206 crore
Samastipur, Begusarai and Khagaria districts may be
which has been sought for this purpose.
reduced to a great extent. We recommend an amount
Police Housing of Rs. 333 crore for these works which will be carried
out after obtaining the necessary clearances.
12.146 The State Government has requested a
grant for the construction of lower subordinate Chhattisgarh
quarters, barrack accommodation for constables
Development of the New Capital City
and model police stations. We recommend a grant
of Rs. 106 crore for this purpose. 12.150 The Government of Chhattisgarh has
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Thirteenth Finance Commission
represented for funding to develop its new capital Kanker, we recommend a grant of Rs. 42 crore, as
city of Naya Raipur. FC-XII had provided a grant of sought by the State Government.
Rs. 200 crore for this purpose. The State Government
has requested a grant amounting to Rs. 450 crore Strengthening of Prison Infrastructure
from this Commission, for office complexes and 12.155 The State Government has stated that the
housing for government employees and Rs. 100 crore prisons in the state are extremely overcrowded. In
for eco-friendly development projects such as order to construct two new prisons, strengthen
conservation of water bodies, development of city central prisons and upgrade other existing prisons,
parks and use of non-conventional sources of energy. we recommend a grant of Rs. 150 crore.
Keeping in view the requirement of the new state,
we recommend Rs. 550 crore as grant for the Construction of Residential Accommodation for
development of Naya Raipur. Police Personnel
12.156 The state has reported an acute shortage
Academy of Administration
of accommodation for policemen, a problem which
12.151 Upon the creation of Chhattisgarh, the has become more acute with creation of new
Academy of Administration was established in 2004, battalions. We recommend a grant of Rs. 250 crore
but has been housed in temporary premises ever for construction of accommodation for police
since. The state has allotted land for the academy personnel, especially constables, head-constables
and has sought a grant to build the campus. We and non-gazetted officers.
propose a grant of Rs. 28 crore for this purpose.
Conservation of Heritage
Construction of Anganwadi Centres
12.157 The State Government has sought a grant
12.152 The state has over 17,000 Anganwadis for conservation works in monuments as well as
without their own buildings. While the State related activities such as training and publications.
Government is also using other sources of funding We recommend a grant of Rs. 45 crore for heritage
to construct these buildings, it has requested a grant conservation.
for construction of Anganwadi Bhawans. We
recommend an allocation of Rs. 150 crore for this Goa
purpose. Sea Barricades
Strengthening of Health Infrastructure 12.158 Given the importance of beaches in Goa, the
memorandum of the State Government has
12.153 The Chhattisgarh government has presented a case for installation of sea barricades
indicated a huge gap in basic health infrastructure to enhance tourist safety. We recommend a grant
in the state. As per their request, we recommend a of Rs. 100 crore for this purpose.
grant of Rs. 66 crore for construction of 500 sub-
health centres, 25 Primary Health Centres (PHCs), Construction of New International Airport at
5 Community Health Centres (CHCs) and 100 MOPA
Ayush Dispensaries, with the proviso that priority
12.159 The state has argued that being a major
would be given to remote tribal areas.
tourist destination, it urgently needs a new airport
Police Training as the existing airport at Dabolim is under the
overall operational control of the Indian Navy. The
12.154 In order to increase the training capacity state has proposed construction of a new
of police training schools and strengthening the international airport at MOPA on Build-Own-
upcoming Police Academy at Chandkhuri and Operate-Transfer (BOOT) basis with an expected
Counter Terrorism and Jungle Warfare (CTJW) at initial expense of be Rs. 200 crore. The government
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Chapter 12: Grants-in-Aid
has sought Rs. 100 crore as grant, which this support for providing integrated quality services
Commission recommends in view of the importance through public health schemes. We propose an
of a new airport for the state. amount of Rs. 237 crore for this purpose.
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Thirteenth Finance Commission
of reverse osmosis plants. We recommend a grant Development of New Parking Lots, Sewage,
of Rs. 300 crore for this. Drainage and Solid Waste Disposal Schemes
12.175 In view of heavy tourist inflow to the state,
Fire and Emergency Services
the government has requested a grant for
12.171 With rapid industrialisation of many parts development of parking lots, sewerage, drainage
of Haryana, the fire service department has to be and solid waste disposal facilities in 13 important
upgraded and adequately equipped to face tourist towns and district headquarters in order to
emergencies. We allocate an amount of Rs. 100 improve the environment of these tourist
crore for this. destinations. We recommend a grant of Rs. 50 crore
for this purpose.
Health Infrastructure
Border Area Development
12.172 The State Government has sought support
to strengthen its health infrastructure, including 12.176 Grants for development of border areas
additional PHCs, CHCs, Sub Division and district have been sought as per the following:
hospital, to fill gaps not covered under other i) The state has sought grants for construction
ongoing programmes. We recommend an amount and improvement of roads and bridges in the
of Rs. 200 crore for this. three border blocks of Kalpa, Pooh and Spiti.
The state has highlighted the importance of
Himachal Pradesh these projects, which would provide
Augmentation of Water Supply Schemes alternative road links in these areas, even in
times of heavy snowfall. We recommend an
12.173 The Government of Himachal Pradesh has amount of Rs. 25 crore, in line with the State
sought a grant for rehabilitation and source-level Government’s petition.
augmentation of water supply in chronically dry and
arid mid-Himalayan regions of Dehra/Jaswan/ ii) The state has also requested a grant towards
Bilaspur/Palampur from Beas and Sutlej rivers/Kol strengthening of electricity infrastructure in
the border areas of Kinnaur and Lahaul-Spiti
Dama, as a long term solution to the domestic water
districts. The four projects identified in these
needs of the people of the region. Given that these
districts will improve the quality of power
regions are chronically water scarce, we recommend
supply and reduce dependence of the
a grant of Rs. 150 crore.
populace on scarce fuel woods and sparse
tree cover. We recommend a grant of Rs. 25
Installation of Steel Crash Barriers and
crore for this purpose.
Strengthening of Parapets at Chronic Accident
Prone Sites
Jammu & Kashmir
12.174 In a supplementary memorandum, the
State Government has requested a grant of Rs. 250 Fiscal Reform
crore for installation of steel crash barriers and 12.177 The Government of Jammu & Kashmir, in
strengthening of parapets at about 536 identified its memorandum and supplementary
chronic accident prone sites, asserting that this is communications to the Commission, has highlighted
essential to reduce human fatalities and accidents, its fiscal burden under the existing mode of financing
as well as to enhance comfort level on important temporary mismatches in its receipts and
national and state highways and other roads located expenditure. Currently this gap is met by overdraft
at commanding heights. Given the importance of facilities from Jammu & Kashmir Bank, at an average
road safety in the state, we recommend a grant of interest rate of 14 per cent. Over the years this has
Rs. 100 crore. assumed the character of a structural deficit, rather
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Chapter 12: Grants-in-Aid
than a temporary facility to bridge the short-term overdraft and inform the Ministry of
mismatch in receipt and expenditure. The State Finance. The Ministry shall then release the
Government has proposed a fiscal reform path grant of Rs. 1000 crore provided for this
wherein it would move towards ways and means purpose. In case the market borrowing is
regime of the Reserve Bank of India (RBI) and has raised in tranches, the grant shall be released
requested the Commission to provide a revenue gap in equal proportions.
grant of Rs. 2300 crore to liquidate the existing
vi) If at any stage the State Government violates
overdraft with Jammu & Kashmir Bank. We have
the WMA/OD (Ways and Means Advance/
considered the proposal of the State Government and
Overdraft) limits as applicable, the fiscal
recommend a fiscal reform grant of Rs. 1000 crore
reform grant to that extent shall be
with following mechanism for operationalisation of
considered as NPRD grant. Consequently,
the proposed fiscal reform path:
the NPRD grants to the state will decrease
i) The balance amount of the existing overdraft by that amount.
shall be met through market borrowings
raised by the State Government, for which Legislative Complex, Jammu
Ministry of Finance would give permission,
12.178 The Government of Jammu & Kashmir has,
over and above the annual borrowing ceiling
in its memorandum, stated that the existing State
of the State Government. While this would
Legislative building is located within the Civil
mean that the state’s allowable fiscal deficit
Secretariat complex in Jammu and that there is
would be greater than the fiscal deficit
pressing need for a new, modern legislative complex
consistent with the FRL path, as set out in
at Jammu. The government has requested a grant
Chapter 9, this is a one-off incentivisation
of Rs. 50 crore for its construction. We recommend
measure which will have long term benefits
this grant.
for fiscal consolidation. Hence, we would
recommend that this amount not be taken
Mubarak Mandi, Jammu
into account when calculating the state’s
FRL-consistent fiscal deficit. 12.179 During the visit of the Commission to
Jammu, the State Government highlighted the
ii) A Committee with representatives from
importance of the cultural heritage of Mubarak
Ministry of Finance, RBI and Government
Mandi and the heritage tourism potential of the site.
of Jammu & Kashmir shall be set up by the
We recommend a grant of Rs. 50 crore for
MoF to operationalise the alternate ways and
conservation and restoration of these heritage
means arrangements.
buildings.
iii) This mechanism should be operationalised,
preferably within 2010-11. However it may Protection and Reinforcement of Tawi
be extended by one year, i.e., till 2011-12, River, Jammu
beyond which the grant would not be 12.180 The State Government has requested funds
available.
for protection and reinforcement of the Tawi front
iv) Ways and Means facility of RBI, as modified to protect the river from pollution, improve drinking
from time to time, shall be applicable to the water supply and prevent damage to property
State Government in terms of limits, interest during floods. We recommend a grant of Rs. 25
rate, over-drafts etc. RBI may supervise and crore in this regard.
monitor the scheme for compliance with the
provisions. Construction of PSC Building, Srinagar
v) The state shall raise market borrowings and 12.181 The Public Service Commission (PSC) has
liquidate 50 per cent of the outstanding a building at Jammu but is housed in temporary
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Thirteenth Finance Commission
accommodation in Srinagar. As requested by the the agricultural produce flooding the market
State Government, we recommend Rs. 15 crore for between June and August, but that there are no
construction of the PSC building at Srinagar. storage facilities and modern markets to ensure
optimal utilisation of the produce. The state has
Wullar Lake, Kashmir sought funds for setting up of cold storage units at
12.182 In its memorandum the Government of Leh, Khaltsi and Nubra, as well as construction of
Jammu & Kashmir has stated that Wullar Lake is godowns for storage of grains, setting up of
the biggest fresh water lake in Asia and the first vegetable cellars and promoting vegetable
‘Ramsar’ site declared in the state. Funds have thus processing units. We recommend an amount of
been sought for management of intervention Rs. 15 crore for this purpose.
measures for the lake. We recommend an amount
Bridges in Leh District
of Rs. 120 crore for this purpose.
12.187 Road connectivity is one of the major issues
Road Connectivity in Kargil District, Ladakh in this region due to its harsh terrain and there is
12.183 Funds have been requested for upgradation pressing need for some bridges. We recommend a
of existing roads and new road connectivity in the grant of Rs. 15 crore for construction of bridges.
remote areas of Kargil District. We recommend a
Tourism
grant of Rs. 20 crore to meet this requirement
12.188 We recommend a grant of Rs. 5 crore for
Upgradation of Power Distribution Network in development of eco-tourism in the Leh to benefit
Leh District the local people, meet their economic needs and
12.184 The power distribution network in Leh guarantee long term conservation of wildlife .
District was laid more than three decades ago and
Jharkhand
since then no renovation/modernisation has been
carried out. It was reported that the region has not Construction of Anganwadi Centres
had access to Accelerated Power Development and
12.189 The supplementary memorandum from the
Reforms Program (APDRP) funds. For the purpose
Government of Jharkhand indicates that 20,000
of renovation and modernisation of transmission
Anganwadi centres in the state do not have proper
and distribution system in Leh District, we
buildings, which adversely affects the delivery of
recommend an amount of Rs. 15 crore, as sought
services at these centres. While the state is utilising
by the State Government.
its available funds, including those from Backward
Regions Development Fund (BRGF) and Rural
Sports Complex and Youth Hostel, Leh
Infrastructure Development Fund (RIDF), it has
12.185 The state has sought funds for construction requested Rs. 432 crore for construction of 10,000
of an ice hockey rink and other sports facilities for centres. Given the importance of early childhood
overall development of the youth. We recommend care, we recommend the amount sought for this
an amount of Rs. 20 crore for the ice hockey rink, purpose.
including its roofing and other associated works and
for an archery stadium, as well as a multipurpose Police Training
hall for other sports.
12.190 In view of the importance of adequate
training for police personnel, especially in the
Cold Storages and Marketing Facilities for
context of extremist problems, the State
Agricultural and Horticultural Products in Leh
Government has requested grants for
12.186 The State Government has highlighted that establishment of a Jharkhand Police Academy,
the agriculture season is very short, with most of upgradation of the Jungle Warfare School and for
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Chapter 12: Grants-in-Aid
enhancing capacity of the Constable Training additional hostels and vocational institutes for
School at Padma. We support these initiatives of students from the PTGs. We recommend a grant of
the State Government and recommend grants as Rs. 125 crore for this purpose.
follows:
(Rs. crore) Karnataka
a) Jharkhand Police Academy : 14
Restoration of Tanks and Traditional
b) Upgradation of Jungle Warfare School : 29
c) Constable Training School : 30
Water Bodies
Total : 73 12.196 The State Government has sought
assistance to rehabilitate more than 30,000 minor
Police Housing irrigation tanks which are not covered under the
12.191 The State Government has proposed existing rehabilitation projects. This initiative will
integrated police colonies to provide family support irrigation and drinking water, while also
accommodation to the police force posted in improving ground water levels. We recommend an
extremist-affected areas. We recommend a grant of amount of Rs. 350 crore for this purpose.
Rs. 225 crore for this purpose.
Drinking Water
Construction of ITIs 12.197 The State Government has sought
12.192 The state currently has 20 ITIs, including assistance for addressing water quality problems in
more than 5800 localities with fluoride-affected
six for women. It has requested funds for
water supply and over 300 habitations with arsenic
establishing additional ITIs. We recommend a grant
contaminated water supply. The State Government
of Rs. 200 crore to set up 20 new ITIs. Preference
has requested for support, supplementary to the
may be given to the 10 districts of the state affected
regular funding under the Accelerated Rural Water
by Left Wing extremism.
Supply Programme. We recommend an amount of
Heritage Conservation Rs. 300 crore for this purpose.
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Thirteenth Finance Commission
for grants to protect the large number of facilities, providing geriatric care and for disposal
monuments and buildings reflecting the state’s of bio-medical waste. We recommend this amount
heritage and recommend an amount of Rs. 100 for the purpose of improving the health
crore on this account. infrastructure in the state.
238
Chapter 12: Grants-in-Aid
drawn attention to the large number of Anganwadi system in the state, we recommend a grant of
Centres without their own buildings in the state. In Rs. 250 crore as follows:
view of the importance of these centres for tackling (Rs. crore)
malnutrition and the problems of adolescent girls Details of Activity Amount
and mothers, we recommend a grant of Rs. 400 Pediatric Intensive Care Unit for District
crore for Anganwadi buildings. Priority may be Hospitals @ Rs. 40 lakh each 20.00
given to areas with high proportion of tribal and SC 100 Nutritional Rehabilitation Centres
(NRCs) for block level institutions, including
population as well as other areas with high rates of
cost of construction for a 20-bed Children’s
malnutrition. Ward @ Rs. 15 lakh each 15.00
Casualty wing including trauma unit for
Development of Tourism district hospitals @ Rs. 125 lakh each 125.00
Microbiology Laboratory for district hospitals
12.211 The state memorandum has submitted @ Rs. 15 lakh each 15.00
details of requirements of the Government of MP Maternity wings in district hospitals
in view of the recent growth in tourism in the state. @ Rs. 15 lakh each 75.00
We are, however, not inclined to support items
involving recurring costs, such as publicity and Establishment of Virology Laboratory at Gandhi
promotion and the Statistical Cell, included in the Medical College, Bhopal
proposal. We, therefore, recommend a grant of Rs.
12.215 In its supplementary memorandum the
180 crore for the tourism sector.
Government of Madhya Pradesh has presented a
proposal for setting up a Virology Laboratory in the
Police Training
state to identify causative viruses and plan
12.212 Given the large number of untrained police appropriate lines of treatment. We recommend a
personnel, the State Government has asked for grant of Rs. 24 crore to establish such a laboratory.
grants in order to upgrade five police training
centres in the state and to establish a new basic Upgradation of MTH Hospital, Indore
constable school at Sagar in line with the standards 12.216 Funds have been requested to upgrade the
and norms of the Bureau of Police Research and hundred year-old MTH Hospital in Indore, which
Development. We recommend a grant of Rs. 180 provides safe motherhood and institutional child
crore for this purpose. birth. We recommend a grant of Rs. 22 crore to
increase the number of beds from 65 to 300.
Conservation of Heritage
Maharastra
12.213 Madhya Pradesh has a large number of
heritage sites, including three world heritage sites. Construction of Anganwadi Centres
The State Government has requested a grant for 12.217 The State Government has noted that about
conservation, development and management of 35,000 Anganwadis do not have buildings of their
heritage. We recommend a grant of Rs. 175 crore own, which affects the quality of services. We
for this purpose. Priority may be given to the large recommend an amount of Rs. 300 crore for
number of monuments which have not received any construction of new buildings.
funds so far.
Anti-Sea Erosion Measures
Health Infrastructure
12.218 The State Government has sought support
12.214 The State Government has represented for for taking up 110 anti-sea erosion bund works in
a grant for critical health infrastructure in the state. six districts. We recommend an allocation of Rs. 205
In order to improve the delivery of health care crore for this purpose.
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Thirteenth Finance Commission
12.220 State Government has sought assistance for 12.226 The state has drawn our attention to the
enhancing police training facilities through fact that the present Raj Bhavan Complex was
upgradation of its various police training schools constructed in 1898. In view of its structural design,
as well as the police academy and detective training maintenance of the building is a difficult task. The
schools in the state. We recommend a grant of Rs. State Government has sought an amount of Rs. 10
223 crore as proposed in this regard. crore for renovation to ensure that the heritage
building is maintained for future generations. We
Heritage Conservation recommend this grant.
12.221 To protect and conserve various sites,
including forts and monuments which are under the Upgradation of Manipur Police Training School
care of the State Government, an amount of Rs. 100 (Pangei) to Manipur Police Training College
crore has been sought. We recommend that this (MPTC)
amount be provided. 12.227 It has been stated in a supplementary
memorandum received from the state that Manipur
Prison Department
State Police has only a police training school catering
12.222 Funds have been sought by the State to basic training of constable/riflemen recruits and
Government for upgradation of facilities in prisons that there is no capacity to impart basic training or
and improvement in prison security. We propose a in-service training to other police personnel. The
grant of Rs. 60 crore for this purpose. State Government has sought funds to improve
training capability for the police force in the state.
Food Testing Labs
Given the security scenario in the state and the
12.223 As requested by the State Government, an importance of police training, we recommend a grant
amount of Rs. 32 crore is allocated for setting up of of Rs. 84.00 crore for this purpose.
food testing laboratories at six divisional
headquarters. Infrastructure for Police Stations in Rural and
Remote Areas
Strengthening Industrial Training Institutions
12.228 The State Government has sought funds to
12.224 There are 407 ITIs in the state, many of strengthen police infrastructure in remote and rural
which were established more than 40 years ago. A areas, the State Government has proposed nine new
number of them have not been modernised since police stations. We recommend a grant of Rs. 23
then. We recommend a sum of Rs. 115 crore for crore for this purpose.
strengthening these ITIs through additional
infrastructure and replacement of machinery. Border Area Development
240
Chapter 12: Grants-in-Aid
pocket in the hill district of Chandel along the and II Water Supply schemes were formulated in
international border. We recommend a grant of Rs. 1970 and 1980 respectively and that the sources for
25 crore for this purpose. these have been depleted over the years. In view of
the rapid expansion of towns in Tura district, the
Special Upgradation Grants for Sports State Government has proposed an augmentation
12.230 In the supplementary memorandum scheme to provide safe and adequate water supply
submitted by the state, attention has been drawn to to all households. We recommend an amount of
the consistently outstanding performance by Rs. 50 crore for the scheme.
sportspersons from Manipur at the national/
Heritage and Tourism
international level. The State Government has
received grants from both FC-XI and FC-XII for 12.234 The state has sought an amount of Rs. 25
upgradation of the main sports complex at Imphal. crore for protection, preservation and
The state has sought a further amount of Rs. 100 crore development of heritage sites, museums and
for maintenance of its ten year-old infrastructure in buildings, including survey, research and
line with international standards. We recommend this documentation activities. The state has some of the
grant, keeping in view the contribution of the state to longest and deepest caves in the subcontinent and
national achievements in sports. has requested Rs. 5 crore for development of cave
tourism. We recommend an amount of Rs. 30
Infrastructure for Autonomous District Councils crore for preservation of heritage as well as cave
12.231 The State Government has indicated that tourism.
the delimitation exercise for the district councils has
been completed and that preparations for elections Infrastructure for Horticulture
in the state are underway. Once the autonomous 12.235 The state has petitioned for funds for
district councils (ADCs) are constituted, there upgradation of its existing infrastructure to promote
would emerge huge demand for administrative expansion in horticulture, including traditional
infrastructure. The state has sought an amount of horticulture and plantation crops. We recommend
Rs. 51 crore for construction of this infrastructure. an amount Rs. 38 crore in this regard.
Keeping in view that the Manipur (Hill Areas)
District Councils (Third Amendment) Act, 2008 has Warehousing Facilities
been passed by the Manipur Legislative Assembly,
12.236 As requested by the State Government, we
in October 2008, with the objective of strengthening
recommend Rs. 2 crore for construction of
the councils, we recommend the amount sought by
warehouses at Tura and Baghmara of West Garo
the state.
Hills and South Garo Hills District, respectively, for
Meghalaya storage of essential commodities.
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Thirteenth Finance Commission
12.239 Based on a request from the state, we Fire and Emergency Services
recommend a grant of Rs. 30 crore for construction
12.245 In response to the State Government’s
of a new Raj Bhavan.
memorandum, we recommend an amount of Rs. 20
Construction of Jails crore for building new fire stations to revamp the
fire and emergency services in the state.
12.240 The state has highlighted lack of capacity
to accommodate inmates in its prisons and has Construction of Additional Building for
requested assistance for completion of three new Civil Secretariat
district jails and two sub-jails. We recommend an
12.246 In view of the need for increased office
amount of Rs. 30 crore for this purpose.
space in the new Capital complex, we recommend
Infrastructure Schemes for the Three Autonomous a grant of Rs. 20 crore for construction of additional
District Councils buildings for the Civil Secretariat.
12.241 The state has sought amounts of Rs. 5.80 Heritage Conservation
crore, Rs. 7.91 crore and Rs. 11 crore for construction
of the respective secretariat/office buildings for 12.247 The State Government has sought an
Mara ADC, Lai ADC and Chakma ADC. We amount of Rs. 7 crore for transforming the
recommend a grant of Rs. 25 crore for these residence of the late chief of Hliappui village,
upgradation works. handed over to the government, into a heritage
centre by construction of an auditorium and public
Construction of Playground in Khatla Village, library in the vicinity of the building. Further, the
Aizawl state has requested funds for improving
connectivity to the existing heritage places which
12.242 The state has submitted a proposal for
are located at some distance from the villages or
construction of a playground in Khatla Village for
main roads. We recommend a grant of Rs. 12 crore
the promotion of sports and culture among the
for these works.
youth, as well as for social purposes and has sought
funds for this purpose. We recommend an amount
Nagaland
of Rs. 2 crore for the playground.
Social Welfare
Construction of Police Station Buildings in Border
12.248 The state has sought funds for
Areas
establishment of Blind Schools and Vocational
12.243 The State Government has sought funds for Training Centres for differently-abled persons. We
construction of 24 police stations, along with recommend a grant of Rs. 30 crore on this account.
242
Chapter 12: Grants-in-Aid
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Thirteenth Finance Commission
244
Chapter 12: Grants-in-Aid
in the state, in terms of maintenance and repairs, Given the criticality of this requirement, we propose
flood control works and measures to address the that an amount of Rs. 500 crore be allocated for
problem of water logging in the south-west districts these projects, of which Rs. 100 crore be allocated
of the state. We recommend an amount of Rs. 200 to border districts.
crore to upgrade the irrigation infrastructure and
another Rs. 200 crore to address the problems in Irrigation
water-logged areas.
12.271 The state has sought support for the 60
pending irrigation projects which could be
Police Training
completed within the next three years. Given the
12.267 The state has sought support for upgrading substantial area which will thus be brought under
training facilities for police personnel. We propose irrigation, we propose an amount of Rs. 300 crore
an amount of Rs. 200 crore for this purpose. for this purpose.
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Thirteenth Finance Commission
246
Chapter 12: Grants-in-Aid
for conservation of the remaining monuments in of historical importance, which reflect the state’s
the state. We recommend a grant of Rs. 9 crore in heritage. We recommend a grant of Rs. 100 crore
this regard. in this regard.
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Thirteenth Finance Commission
Development of Infrastructure for Zonal Offices Development of Maharaja Bir Bikram College
under Autonomous District Council (MBBC) Complex at Agartala
12.291 The Tripura Tribal Autonomous District 12.295 The State Government has stated that the
Council (TTADC) is spread over all four districts of Maharaja Bir Bikram College (MBBC) at Agartala
the state, with zonal headquarters in each of the is not only a premier educational institution of the
districts. The State Government has requested a state, but also an important heritage site. In
grant to develop zonal offices for the TTADC. In response to the request from the State Government,
view of the need to provide proper outreach for the we recommend a grant of Rs. 30 crore for
Council in all four districts, we recommend Rs. 20 conservation and development of MBBC.
crore for development of infrastructure in its four
zonal offices. Modernisation of Churaibari Checkpost Complex
12.296 The State Government has emphasised the
Construction of Drainage System in Agartala need for a modern checkpost on the only National
12.292 It has been stated in a supplementary Highway (NH-44) connecting the state at Churaibari.
memorandum received from the state that the city This is expected to have a favourable impact on state
of Agartala suffers from periodic floods due to lack revenues. The Commission recommends a grant of
of a storm water drainage system. Several areas of Rs. 20 crore for modernising this check post.
the city are situated such that gravity discharge into
the surrounding rivers is severely hindered. The State Construction of the New Raj Bhawan
Government has requested funds for construction 12.297 The present Raj Bhawan is located in a
of about 3 lakh metres of drains and pumping building constructed more than a century ago. Many
stations. In our view, this would be a worthwhile parts of this heritage building have now become
investment to improve health and sanitation in the unfit for use, whereas a portion of this complex has
city and we therefore recommend a grant of Rs. 200 been converted into a public park. The Government
crore. However, the cost of electricity for pumping of Tripura has identified a site for the new Raj
may not be borne by this grant. Bhawan at the new capital complex and has
requested Rs. 30 crore for its construction. We
Technical Education recommend this amount.
12.293 The State Government has sought a grant
for setting up of four polytechnic institutions in the Improvement of the Prison System
Schedule VI Areas at Khumulwng, Ambassa, 12.298 The Twelfth Finance Commission had
Bagbassa and Fulkumari. The MHRD has already provided Rs. 30 crore in the first phase of the ‘prison
provided certain grants for the polytechnic at system improvement project’ for construction of a
Fulkumari and we see no merit in providing another central jail with modern amenities at Bishalgarh.
source of funds for it. In order to promote technical The State Government has requested funds to
education in TTADC areas, we recommend a grant complete the second phase of this project
of Rs. 75 crore for the three polytechnics. comprising construction of staff quarters,
additional wards and a playground. We recommend
Development of Kok-Borok Language and Culture Rs. 15 crore, as sought by the state, to ensure that
12.294 The main language of the inhabitants of the these works are completed.
TTADC area is Kok-Borok. The State Government
Construction of Fire Service Headquarters
has sought a grant for development of the language
to preserve the linguistic identity of the Tripura 12.299 As requested by the State Government, we
tribes. We recommend a grant of Rs. 10 crore for recommend Rs. 15 crore for construction of the
this purpose. headquarters of fire services in the state.
248
Chapter 12: Grants-in-Aid
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Thirteenth Finance Commission
12.310 The State Government has requested Rs. 100 Border Area Development
crore for establishing five nursing training colleges in
Pithoragarh, Almora, Tehri, Chamoli and Pauri 12.315 The state has highlighted the acute shortage
Districts of the state to address the issue of acute of infrastructure for rural development in remote
shortage of nursing staff in the state, particularly in and border areas of the state and has requested a
remote areas. We recommend this grant. grant for community development-cum-marketing
250
Chapter 12: Grants-in-Aid
centres and residential buildings for the Gram Vikas Upgradation of Fire and Emergency Services
Adhikari and Agriculture Assistant in each Naya
12.319 Having converted the West Bengal Fire
Panchayat of the five border districts. We
Service Department into the West Bengal Fire and
recommend an amount of Rs. 105 crore for this Emergency Department in view of new challenges,
purpose. the State Government has requested a grant for its
upgradation and strengthening. We recommend a
West Bengal
grant of Rs. 150 crore to fill the infrastructure and
Police Training equipment gaps in the Department.
12.317 The state memorandum has drawn the 12.322 In a supplementary memorandum, the
Commission’s attention to the acute shortage of State Government has drawn our attention to the
residential accommodation for West Bengal and critical need for better connectivity in blocks on the
Kolkata police. We recommend a grant of Rs. 90 international border. We recommend a grant
crore, as requested, for the construction of 2000 of Rs. 150 crore for construction of roads for this
housing units. purpose.
12.318 The State Government has emphasised that 12.323 It has been indicated to the Commission
strengthening, along with armouring of the by the State Government that although the state
riverside slope of embankments of the most has numerous historical monuments, museums,
vulnerable portions in the Sunderban region, is archives and archaeological sites, their
essential to prevent damage from tidal floods. maintenance needs to be improved. We
During our field visits, the Commission witnessed recommend an amount of Rs. 100 crore on this
the damage done to many of the embankments. We account.
recommend a grant of Rs. 450 crore for
General Conditionalites
strengthening of embankments, as well as
construction and renovation of drainage structures 12.324 In addition to the stipulations prescribed
in the Sunderban region. in paras 5.52 and 9.82, the following conditionalities
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Thirteenth Finance Commission
shall apply with regard to the state-specific grants Certificates (UCs)/Statements of Expenditure
recommended above: (SOE) provided as per General Finance Rules
(GFR 2005).
i) No funds from any of the state-specific
grants may be used for land acquisition by 12.325 A statement indicating total transfers to the
the states. Wherever land is required for the states is given in Table 12.7.
project/construction, such land may be
made available by the State Government. Monitoring
ii) The phasing of the state-specific grants given 12.326 The Twelfth Finance Commission had
in Table 12.6 is only indicative; states may recommended that a High Level Monitoring
communicate their required phasing to the Committee headed by the Chief Secretary should
Central Government. The grant may be review the utilisation of grants on a quarterly basis
released in a maximum of two instalments and take corrective actions as required to ensure
in a year. However, no grants would be proper utilisation of these funds. In our view this
released in 2010-11 except the three grants committee has served a useful purpose and should
indicated in the Table.
be continued in the future to monitor the grants
iii) Accounts shall be maintained and Utilisation recommended by us.
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Table 12.7: Total Finance Commission Transfers to States (2010-15)
(Rs. crore)
Note: 1. An amount of Rs. 60,000 crore is not included in the total Grants-in-aid figure in column 17. This comprises three grants (a) GST Compensation grants (Rs. 50,000 crores),
253
(b) Grants for reduction in IMR (Rs. 5000 crores) and (c) Renewable energy grant (Rs. 5000 crores). The state-wise allocation of these grants is not possible at this stage as this is
dependent on their future performance. Adding these forward looking grants to the total grants figure in column 17, the aggregate Grants-in-aid figure works out to Rs. 318581
Chapter 12: Grants-in-Aid
crores and the total transfers work out to Rs. 1766676 crores.
2. Total may not tally due to rounding off.
CHAPTER 13
Looking Ahead: Towards a New
Architecture for Federal Finance
13.1 The Terms of Reference (ToR) of the facilitate investment decisions being made on purely
Thirteenth Finance Commission reflect the economic concerns and thus help lagging regions. It
emerging need for India to respond will be a landmark effort in cooperative fiscal
transformationally, rather than incrementally, to federalism, with all stakeholders contributing to the
national and global imperatives that are causing national welfare by accepting its framework. Such a
fundamental changes to the national development Model GST will be a cornerstone of the new
agenda. In the context of federal finance this poses architecture of federal finance.
its own specific challenges which this Commission 13.3 The emergence of rural and urban local
has sought to address in its recommendations using bodies as key players in bringing about a
the instruments at its disposal. However, it must development transformation has been recognised
be recognised that the change process is not by this Commission and supported by a number of
confined to the time horizon of the Commission’s measures that we have recommended. This process
recommendations or, even, to the ambit of these needs to be fostered. Local bodies must be
recommendations. In this chapter we identify areas increasingly empowered to fulfill their
where complementary actions need to be taken in responsibilities, and we are of the view that this
the medium and long term to secure for India a would, in the future, involve a fundamental rethink
fiscal framework equipped to meet the challenges of the Constitutional arrangements regarding inter-
of the future and to enable India to make the most governmental allocation as well as devolution of
of its demographic dividend. resources to the third tier. To this end, we would
13.2 This Commission’s deliberations have been urge careful thinking about Constitutional changes
conducted in a fiscal environment which has been that would allow the third tier to access resources
dominated by the proposal to implement the Goods directly from the divisible pool. The introduction
and Services Tax (GST). When implemented in the of the GST also needs to keep the local bodies in
manner proposed by us, this reform measure will mind in the future since, being a consumption based
put India’s indirect tax system at the forefront of and incentive compatible tax, it is well suited for
international best practice. The review of the GST in direct allocation to the third tier. Such sharing of
Chapter 5 of this report has highlighted the GST with local bodies will help in eliminating
significant benefits that the model GST, can provide distortionary taxes such as octroi.
to the Indian economy. It will reduce the vertical 13.4 The above, in turn, signals the need to rethink
imbalance between the Centre and the states. It will the basis of allocation of different revenue bases to
foster a common market across the country and different parts of the inter-governmental fiscal
accelerate growth. It will reduce distortions by framework. An important example is the allocation
completely switching over to the destination of revenues arising from the ‘fiscal commons’. These
principle. It will make the Indian manufacturing are national resources and should be at the collective
sector more competitive and boost exports. It will disposal of the central and all state governments.
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Chapter 13: Looking Ahead: Towards a New Architecture for Federal Finance
Important examples of these would be profit and it is important that Finance Commissions play
petroleum, profit gas and revenue shares from their part in incentivising changes in governance
spectrum. There may be other natural resources using the instruments at their disposal. At the
which also fall in this category. Hitherto, these present time, criteria for horizontal devolution and
non-tax revenues were considered to be exclusively for deciding the distribution of specific purpose
in the domain of the Centre. We are persuaded of grants use largely static parameters, such as
the case to view these as being shareable between population and area, as well as parameters that are
the Centre and the states collectively. To do this, it proxies for fiscal capacity, fiscal need and revenue
would be necessary to include these as a part of the effort. To introduce the governance dimension, it
divisible pool. This would require a consititutional would be necessary to consider dynamic parameters
amendment. This is an important issue involving, such as those related to indicators of MDG progress.
Use of such parameters would incentivise states to
inter alia, the optimal utilisation of natural
think about ways in which to improve governance
resources and, therefore, requires careful further
and outcome based service delivery. However, the
consideration.
lack of reliable, universally understood and
13.5 Further reforms will be necessary to enable regularly produced data has not made it possible
future policy initiatives, including those taken by for the present Finance Commission to consider
succeeding Finance Commissions, to be in such indicators. We would urge that attempts be
consonance with contemporary policy imperatives. made to remedy these lacunae.
In the context of future Finance Commissions, an 13.7 FC-XII emphasised the need for statistical
important example would be the updating of award agencies to design and implement a plan to produce
parameters (such as the parameters for horizontal more timely data on Gross State Domestic Product
devolution and those entering grant formulae), (GSDP). In Chapter 9, paras 9.85 and 9.86, we have
within the time horizon of the award period and not been constrained to use the latest available
just (as is the case upto the present) when the award estimates of GSDP which are for years less recent
recommendations are made. To do this, however, than we would have liked. This is an issue that
there would have to be major structural requires most urgent attention in order to eliminate
improvements in the timely, accurate and regular time lags in the availability of data and to bring to a
availability of the required data. This is also true of close the cumbersome process of generating
dimensions of fiscal policy design and comparable GSDP data. There should, in our view,
implementation, other than those directly covered be no hesitation on the part of all agencies
by this Commission. It is for this reason that we have concerned, whether at the central, state or district
devoted considerable thought and attention to level, to put aside any perceived questions of
incentivising improvement in data quality and mandate or primacy and collectively agree to a
availability, and have made specific provisions for blueprint and methodology for delivering
the same in our grants. Areas of special importance comparable GSDP data on a regular and timely
include data pertaining to forest cover, district level basis. It is equally important that the Central
data on social and economic indicators that would Statistical Organization (CSO) assume greater
responsibility for producing GSDP at market prices,
enable better understanding and specification of
and for generating estimates of income accruing to
intra-state disparities, as well as data on domestic
states inclusive of net inward remittances. It is
and cross-border remittances and inter-state trade.
important to recognise that data is vital for the
We also need better data on human development
business process underpinning effective policy
and Millenium Development Goals (MDG).
making, monitoring and devolution, and that the
13.6 It is widely acknowledged that improving availability of quality data is a factor that will
governance is at the heart of securing a determine whether future policy making is able to
transformation in the quality of public expenditure rise to the challenges posed by a rapidly changing
in India. This is true at every level of government social and economic environment.
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Thirteenth Finance Commission
13.8 Environmental issues are increasingly force be set up to examine the costs and benefits to
becoming important in the construction of optimal the system as well as its applicability in the case of
inter-governmental fiscal arrangements. In this appropriation accounts and finance accounts. The
report, we have sought to highlight how actions report also underlines the need for training and
taken by states to maintain and enhance the supply capacity building; ensuring alignment of the plan,
of environmental public goods and to foster positive budget and accounts; as well as putting in place a
environmental externalities have resulted in viable financial system of accounts. The Ministry
benefits for the nation as a whole. We have made a of Finance, in its presentation to the Commission,
beginning, therefore in introducing an urged that the changeover to accrual accounting be
environmental dimension into inter governmental managed with care and circumspection, given that
fiscal arrangements. We envisage that this the process is resource and time intensive, and that
dimension will grow in importance in the future as its benefits have not been unambiguously proven
environmental sustainability becomes one of the by international experience. We are satisfied that
centrepieces of development policy formulation and the issue is receiving close attention from the
the role of incentives in securing such sustainability relevant authorities, and that extant actions by the
can be expected to commensurately increase over Central, State and Local Governments are
time. The multidimensional approach to facilitating a ‘bubble up’ approach to the transition.
environmental policy within public finance is thus
13.10 We have recommended several measures to
the need of the hour, looking across different
enhance institutional deepening in our report, such
dimensions of environmental sustainability and,
as the creation of a council of finance ministers, a
especially, those that directly affect the poor and
fiscal council, a local body ombudsman, etc. This
vulnerable in their daily lives like soil quality, water,
should not be seen in isolation; rather, these are
sanitation, pollution and bio-diversity. The
part of the overall effort that needs to be made to
environment is a shared legacy with future
improve the quality of public institutions to deliver
generations and it is of the first importance that
a framework that is suited to the demands of India,
inter-governmental fiscal arrangements protect and
emerging as an important contributor to the growth
foster this legacy for their benefit.
and stability of the global economy.
13.9 FC-XII recommended the introduction of
13.11 Our report raised several important issues
accrual based accounting systems. Recognising that
regarding the classification of revenue and capital
this changeover would require considerable
expenditures. In Para 9.25 of the report, we have
preparation and training, it also recommended the
made the point that no provision exists to define a
introduction of eight financial statements as a
grant for creation of assets as a ‘capital grant’, under
precursor to this changeover. These statements, to existing administrative arrangements. We would
be appended to the finance accounts, were to urge some thinking on this issue in the medium
provide details on financial obligations and term. This will also be necessary if disinvestment
expenditure not presently available in the accounts. proceeds are to be deployed for capital investments
The Government of India accepted the at the state and local body levels. There are several
recommendation to introduce accrual based examples, globally, of solutions to the problem of
accounting and asked the Government Accounting classification of grants used for capital
Standards Advisory Board (GASAB) in the office of expenditures. In some cases, grants to finance
the Comptroller and Auditor General (C&AG) to capital expenditure are classified as ‘capital
recommend an operational framework and a spending’ by both the disbursing and the recipient
detailed roadmap for its implementation. The entities. In some other cases, grants provided by
Second Administrative Reforms Commission one unit of government for capital spending by
(SARC) in its Fourteenth Report appraised the issue another unit are classified as ‘capital receipts’ by
of accrual accounting and recommended that a task the recipient of the grant, but as ‘revenue
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Chapter 13: Looking Ahead: Towards a New Architecture for Federal Finance
expenditure’ in the accounts of the unit providing requirements for effective implementation of
the grant. regulation and improved administration.
13.12 The fiscal position of many states has 13.14 The proposed Fiscal Council and Council of
undergone a transformation. The states today are, Finance Ministers would require such a
collectively, at the cutting edge of best practices in restructured ministry to be able to do its work
maintaining prudent and pro-development fiscal optimally and effectively. Further, the issue of
policies. For each state taken individually, there is disinvestment and public private partnerships will
much to learn in terms of best practice from this require greater analytical depth to decision making,
hugely positive collective experience. Important to make the most of these high-potential policy
areas where such best practices can be emulated and windows and to maintain and enhance public
implemented include timely and accurate reporting accountability in these areas. The challenges of
of public sector accounts, engagement with medium term fiscal and budget design will also
legislative oversight bodies such as Public Accounts require fundamental changes in the business
Committees, initiatives to independently review and process of budget and tax policy formulation.
monitor compliance with Fiscal Responsibility
13.15 Finally, and most important in the context
Legislation (FRL), effective design of medium term of Finance Commissions, we recommend the
fiscal frameworks and significant progress in the creation of a new State Finances Division in the
fiscal and operational empowerment of local bodies. Ministry of Finance (MoF) which will have the
Improving quality of public expenditure, which is analytical capabilities to provide policy advice on
important for all states, would require independent matters pertaining to inter-governmental fiscal
evaluation of major schemes and projects on a arrangements and financial relations. This division
regular basis. will serve as a national think tank on
13.13 In the context of modernisation, a inter-governmental fiscal matters, a service which,
comprehensive overhaul of the institutional at this point, is only provided by the Reserve Bank
arrangements for fiscal policy design and of India. It will also be pro-active in monitoring
formulation is a vital challenge. The principal the progress of state level fiscal reforms
responsibility for this is vested with the Ministry of and implementation of forward looking
Finance. At the central level, the MoF needs to focus recommendations of the Finance Commission in
more closely on its primary function, which is to letter as well as in spirit.
deliver and implement a prudent fiscal policy in 13.16 We would also recommend the setting up of
consonance with the needs of overall development an ongoing research programme on issues of
policy making. This would require an acceleration inter-governmental fiscal federalism in India that
of the measures to shift regulatory and could provide inputs to the Ministry of Finance and
administrative functions into specialised agencies also serve as a research resource for the work of
which are distinct from the ministry. In this context, future Finance Commissions. This research
the Commission supports the move to create a programme should be independently managed by
National Debt Management Agency (NDMA). Also, reputed national institutions.
in such an economy, MoF, as the main force behind
the fiscal responsibility and budget management 13.17 The Ministry of Finance that is to take charge
processes, has to calibrate and implement an of policy making in the twenty first century will thus
increasingly sophisticated roadmap for future fiscal need to be very different in shape and form from
that presently in place. We would urge all parties
consolidation. This requires considerably enhanced
to immediately initiate this important institutional
policy formulation and analysis capabilities and a
deepening.
more horizontal and integrated approach to the task
than has historically been the case. As India is now 13.18 In Chapter 3, we looked at the challenges
a trillion dollar-plus economy, these are posed to fiscal federalism by the differential impact
257
Thirteenth Finance Commission
of the growth process on different segments of the policy framework of the country, particularly the
population and different areas of the country. It Planning Commission, should reflect on and
is a matter of great potential concern that increases address. Fiscal interventions to correct against
in disparities in growth should not lead to real and perceived disparities generated by the
demonstrable differences in access to growth process can only address the symptoms
opportunities and public goods. This is not an and alleviate the consequences of not securing
issue which can be tackled using the limited inclusive growth in all its multiple dimensions.
instruments of inter-governmental public finance Hence, we would wish to reiterate the importance
available to the Finance Commission. It is a wider of securing growth that is inclusive across all the
policy issue on which we feel the institutions multifarious dimensions that are pertinent in a
charged with designing the overall development large, vibrant and variegated country like India.
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Thirteenth Finance Commission
2010–2015
December 2009
Chapter 2: Annex
Annex 2.1
(Para 2.1)
THE GAZETTE OF INDIA: EXTRAORDINARY
[Part II-SEC.3(ii)]
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 13th November, 2007
S.O.1937 (E) - The following order issued by the President is published for general information:-
ORDER
In pursuance of clause (1) of article 280 of the Constitution read with the provisions contained in the Finance
Commission (Miscellaneous Provisions) Act, 1951 (33 of 1951), the President is pleased to constitute a Finance
Commission consisting of Dr. Vijay L. Kelkar, former Union Finance Secretary and Adviser to the then Finance
Minister, as the Chairman and the following four other members namely:-
1. Shri B.K. Chaturvedi Member
Member, Planning Commission (Part-Time)
2. Dr. Indira Rajaraman Member
Professor Emeritus,
National Institute of Public Finance & Policy,
New Delhi
3. Dr. Abusaleh Shariff Member
Chief Economist,
National Council of Applied Economic Research,
New Delhi
4. Prof. Atul Sarma Member
Former Vice-Chancellor,
Rajiv Gandhi University
(Formerly Arunachal University)
259
Thirteenth Finance Commission
6. In making its recommendations, the Commission shall have regard, among other considerations, to-
(i) the resources of the Central Government, for five years commencing on 1st April 2010, on the basis of levels
of taxation and non-tax revenues likely to be reached at the end of 2008-09;
(ii) the demands on the resources of the Central Government, in particular, on account of the projected Gross
Budgetary Support to the Central and State Plan, expenditure on civil administration, defence, internal and
border security, debt-servicing and other committed expenditure and liabilities;
(iii) the resources of the State Governments, for the five years commencing on 1st April 2010, on the basis of
levels of taxation and non-tax revenues likely to be reached at the end of 2008-09;
(iv) the objective of not only balancing the receipts and expenditure on revenue account of all the States and the
Union, but also generating surpluses for capital investment;
(v) the taxation efforts of the Central Government and each State Government and the potential for additional
resource mobilisation to improve the tax-Gross Domestic Product ratio in the case of the Union and tax-
Gross State Domestic Product ratio in the case of the States;
(vi) the impact of the proposed implementation of Goods and Services Tax with effect from 1st April, 2010,
including its impact on the country’s foreign trade;
(vii) the need to improve the quality of public expenditure to obtain better outputs and outcomes;
(viii) the need to manage ecology, environment and climate change consistent with sustainable development;
(ix) the expenditure on the non-salary component of maintenance and upkeep of capital assets and the
non-wage related maintenance expenditure on plan schemes to be completed by 31st March, 2010 and the
norms on the basis of which specific amounts are recommended for the maintenance of the capital assets
and the manner of monitoring such expenditure;
(x) the need for ensuring the commercial viability of irrigation projects, power projects, departmental
undertakings and public sector enterprises through various means, including levy of user charges and
adoption of measures to promote efficiency.
7. In making its recommendations on various matters, the Commission shall take the base of population figures as
of 1971, in all such cases where population is a factor for determination of devolution of taxes and duties and grants-in-
aid.
8. The Commission may review the present arrangements as regards financing of Disaster Management with
reference to the National Calamity Contingency Fund and the Calamity Relief Fund and the funds envisaged in the
Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.
9. The Commission shall indicate the basis on which it has arrived at its findings and make available the estimates
of receipts and expenditure of the Union and each of the States.
10. The Commission shall make its report available by the 31st day of October, 2009, covering the period of five years
commencing on the 1st day of April, 2010.
Sd/-
Smt. PRATIBHA DEVISINGH PATIL
President
[No. 10(2)-B(S)/2007]
L.M.VAS, Jt. Secy.(Budget)
New Delhi
14th November, 2007
260
Chapter 2: Annex
Annex 2.2
(Para 2.1)
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 27th March, 2008
S.O. 780(E)- The following Order made by the President is published for general information:-
ORDER
Whereas, the Thirteenth Finance Commission has been constituted by the President by Order published with the
notification of the Government of India in the Ministry of Finance (Department of Economic Affairs) vide number
S.O.1937 (E), dated the 14th November, 2007 and Dr. Abusaleh Shariff was appointed as Member of the said
Commission.
And, whereas, Dr. Abusaleh Shariff has resigned as Member and the President has been pleased to accept the said
resignation with effect from the 14th January, 2008;
Now, therefore, in pursuance of clause (1) of article 280 of the Constitution, read with Sections 3,4 and 6 of the Finance
Commission (Miscellaneous Provisions) Act, 1951 (33 of 1951), the President is pleased to appoint Dr. Sanjiv Misra as
Member of the Finance Commission vice Dr. Abusaleh Shariff and for that purpose makes the following amendment in
the Order aforesaid, namely:-
In the said Order, in paragraph 1, for serial number 3 and the entries relating thereto, the following serial number and
entries shall be substituted, namely:-
Sd/-
Smt. PRATIBHA DEVISINGH PATIL
President
New Delhi
Dated, the 28th March, 2008
Note: The principal notification for constitution of the Finance Commission was published in the Gazette of India,
Extraordinary vide number S.O. 1937(E), dated the 14th November, 2007.
261
Thirteenth Finance Commission
Annex 2.3
(Para 2.3)
REGD. NO.D.L-33004/99
THE GAZETTE OF INDIA – EXTRAORDINARY
PART II-Section3-Sub-section (ii)
[No. 1216]
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 25th August, 2008
S.O. 2107- The following Order made by the President is published for general information :-
ORDER
In pursuance of clause (1) of article 280 of the Constitution read with the provisions contained in the Finance
Commission (Miscellaneous Provisions) Act, 1951 (33 of 1951), the President is pleased to amend the Order number
S.O.1937 (E), dated the 13th November, 2007 published in the Gazette of India (Extraordinary), dated the 14th November,
2007, namely :-
In the said Order, after Paragraph 8, the following Paragraph shall be inserted, namely, -
“8. A. Having regard to the need to bring the liabilities of the Central Government on account of oil, food and fertilizer
bonds into the fiscal accounting, and the impact of various other obligations of the Central Government on the deficit
targets, the Commission may review the roadmap for fiscal adjustment and suggest a suitably revised roadmap with a
view to maintaining the gains of fiscal consolidation through 2010 to 2015.”
Sd/-
Smt. PRATIBHA DEVISINGH PATIL
President
New Delhi
25th August, 2008
[F.No. 10(2)-B(S)/2007]
L.M.VAS, Addl. Secy. (Budget)
Note:-The Order number S.O. 1937(E), dated the 13th November, 2007 was published in Part II, Section 3, Sub-section
(i) of the Gazette of India, vide, S.O. 1937 (E), dated the 14th November, 2007.
262
Chapter 2: Annex
Annex 2.4
(Para 2.4)
THE GAZETTE OF INDIA – EXTRAORDINARY
PART II-Section 3-Sub-section (ii)
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 18th October, 2009
S. O. 2629(E). - The following Order made by the President is to be published for general information:-
ORDER
In pursuance of the provisions of Article 280 of the Constitution read with Sections 6 and 8 of the Finance
Commission (Miscellaneous Provisions) Act, 1951 (33 of 1951), the President hereby directs that-
(i) in the Order dated the 14th November, 2007 published in the Gazette of India, Extraordinary vide
notification of the Government of India in the Ministry of Finance (Department of Economic Affairs),
number S.O. 1937 (E), dated the 14th November, 2007, -
(a) in paragraph 3, for the words, figures and letters “the 31st day of October, 2009”, the words, figures and
letters “the 31st day of January, 2010” shall be substituted;
(b) in paragraph 10, for the words, figures and letters “the 31st day of October, 2009”, the words, figures
and letter “the 31st day of December, 2009” shall be substituted.
Sd/-
Smt. PRATIBHA DEVISINGH PATIL
President
Note:-The principal notification was published in the Gazette of India, Extraordinary vide notification number S.O.
1937(E), dated the 14th November, 2007.
263
Thirteenth Finance Commission
Annex 2.5
(Para 2.6)
List of Sanctioned Posts
Sl. Name of the Post No. of Scale of Pay (Rs.) Revised Pay Band
No. Posts (Pre-revised) and Grade Pay
w.e.f. 1.1.2006
1. Secretary 1 Rs.26,000/-(fixed)/ Rs.80,000/- (fixed)/
(to be operated at the level of Additional Secretary/or Secretary 22400-24500/- HAG 67,000 (annual
to the Government of India increment @3%)
79000
2. Joint Secretary 3 18,400-22,400/- PB-4 GP-10000
3. Economic Adviser 1 18,400-22,400/- PB-4 GP-10000
4. Director 4 14300-18300 PB-4 GP-8700
5. Joint Director 3 12000-16500 PB-3 GP-7600
6. PS to Chairman 1 12000-16500 PB-3 GP-7600
7. Deputy Director 6 10000-15200 PB-3 GP-6600
8. PPS / Addl. PS 5 10000-15200 PB-3 GP-6600
9. Librarian & Information Officer 1 10000-15200 PB-3 GP-6600
10. Assistant Director 8 8000-13500 PB-3 GP-5400
11. Admn.-cum-A/C Officer 1 8000-13500 PB-3 GP-5400
12. Superintendent/SAS Accountant 1 6500-10500 PB-2 GP-4600
13. Steno Gr. ‘B’ 6 6500-10500 PB-2 GP-4800
14. Economic Investigator Gr.I (Redesignated as Economic Officer) 10 6500-10500 PB-2 GP-4600
15. Assistant 4 6500-10500 PB-2 GP-4200
16. Cashier 1 5500-9000 PB-2 GP-4200
17. Steno Gr. ‘C’ 8 6500-10500 PB-2 GP-4200
18. Hindi Steno Gr. ‘C’ 1 6500-10500 PB-2 GP-4200
19. Steno Gr. ‘D’ 4 4000-6000 PB-1 GP-2400
20. UDC 2 4000-6000 PB-1 GP-2400
21. Telephone Operator 1 3050-4590 PB-1 GP-1900
22. Hindi Typist 1 3050-4590 PB-1 GP-1900
23. LDC/Typist 3 3050-4590 PB-1 GP-1900
24. Staff Car Driver 5 3050-4590 PB-1 GP-1900
25. Jamadar (Senior Peon) 5 2610-4000 PB-1 GP-1800
Total 86
264
Chapter 2: Annex
Annex 2.6
(Para 2.6)
List of Functionaries
265
Thirteenth Finance Commission
Annex 2.7
(Para 2.8)
No.F.10 (6)-B(S)/2007
Government of India
Ministry of Finance
Department of Economic Affairs
(Budget Division)
To
The Pay and Accounts Officer,
Ministry of Finance,
Department of Economic Affairs,
New Delhi.
Subject: Delegation of Powers of “Department” of the Central Government to the Thirteenth Finance
Commission.
Sir,
The undersigned is directed to state that it has been decided in consultation with the Department of Expenditure to
delegate powers of a Department of the Central Government under the Delegation of Financial Powers Rules, 1978
(DFPRs), to the Thirteenth Finance Commission (TFC), except the powers to:
(i) Create posts
(ii) Write off losses, and
(iii) Re-appropriation of funds exceeding 10 per cent of the original budget provision for either of the primary
units of appropriation or sub-head i.e., the primary units or sub-head from which the funds are being
re-appropriated or the primary unit or sub-head to which funds are to be re-appropriated, whichever is
less.
2. The above enhanced powers will be subject to the adherence of the provision of DFPRs and orders issued by
the Department of Expenditure, Ministry of Finance, Government of India, from time to time. These powers shall be
exercised by TFC in consultation with FA (Finance).
3. This issue with the concurrence of IFA vide their FT No. 15/US (IF-I).07 dated 3rd January, 2008.
Sd/-
(Naresh Kumar)
Deputy Director (Budget)
266
Chapter 2: Annex
Annex 2.8
(Para 2.9)
Public Notice
1. The Thirteenth Finance Commission invites suggestions on issues related to its terms of reference from the
members of the general public, Institutions and Organisations.
2. The Thirteenth Finance Commission has been constituted in pursuance of the provisions of Article 280 of the
Constitution of India by the President under the Chairmanship of Dr. Vijay L. Kelkar vide a Notification dated 13th
November, 2007. The Commission shall make recommendations covering a period of five years commencing on the 1st
April 2010 as to the following matters:
(i) the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be,
divided between them under Chapter I Part XII of the Constitution and the allocation between the States of
the respective shares of such proceeds;
(ii) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated
Fund of India and the sums to be paid to the States which are in need of assistance by way of grants-in-
aid of their revenues under article 275 of the Constitution for purposes other than those specified in the
provisos to clause (1) of that article; and
(iii) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the
Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance
Commission of the State.
3. The Commission shall review the state of the finances of the Union and the States, keeping in view, in particular,
the operation of the States’ Debt Consolidation and Relief Facility 2005-2010 introduced by the Central Government on
the basis of the recommendations of the Twelfth Finance Commission, and suggest measures for maintaining a stable
and sustainable fiscal environment consistent with equitable growth.
4. In making its recommendations, the Commission shall have regard, among other considerations, to –
(i) the resources of the Central Government, for five years commencing on 1st April 2010, on the basis of levels
of taxation and non-tax revenues likely to be reached at the end of 2008-09;
(ii) the demands on the resources of the Central Government, in particular, on account of the projected Gross
Budgetary Support to the Central and State Plan, expenditure on civil administration, defence, internal and
border security, debt-servicing and other committed expenditure and liabilities;
(iii) the resources of the State Governments, for the five years commencing on 1st April 2010, on the basis of
levels of taxation and non-tax revenues likely to be reached at the end of 2008-09;
(iv) the objective of not only balancing the receipts and expenditure on revenue account of all the States and the
Union, but also generating surpluses for capital investment;
(v) the taxation efforts of the Central Government and each State Government and the potential for additional
resource mobilisation to improve the tax-Gross Domestic Product ratio in the case of the Union and tax-
Gross State Domestic Product ratio in the case of the States;
(vi) the impact of the proposed implementation of Goods and Services Tax with effect from 1st April, 2010,
including its impact on the country’s foreign trade;
(vii) the need to improve the quality of public expenditure to obtain better outputs and outcomes;
(viii) the need to manage ecology, environment and climate change consistent with sustainable development;
(ix) the expenditure on the non-salary component of maintenance and upkeep of capital assets and the non-
wage related maintenance expenditure on plan schemes to be completed by 31st March, 2010 and the
norms on the basis of which specific amounts are recommended for the maintenance of the capital assets
and the manner of monitoring such expenditure;
(x) the need for ensuring the commercial viability of irrigation projects, power projects, departmental
undertakings and public sector enterprises through various means, including levy of user charges and
adoption of measures to promote efficiency.
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5. In making its recommendations on various matters, the Commission shall take the base of population figures as
of 1971, in all such cases where population is a factor for determination of devolution of taxes and duties and grants-in-
aid.
6. The Commission may review the present arrangements as regards financing of Disaster Management with
reference to the National Calamity Contingency Fund and the Calamity Relief Fund and the funds envisaged in the
Disaster Management Act, 2005(53 of 2005), and make appropriate recommendations thereon.
7. The Commission shall indicate the basis on which it has arrived at its findings and make available the estimates
of receipts and expenditure of the Union and each of the States.
8. This notice as well as relevant material on the previous Finance Commissions is available on the website of the
Finance Commission http://fincomindia.nic.in
9. The Finance Commission would encourage suggestions/views from all interested organisations and individuals
which may be sent by 31st March, 2008 in any of the following manner:
(i) By post, addressed to the Secretary, Thirteenth Finance Commission, Jeevan Bharti Building, Tower-1,
Ground Floor, Parliament Street, New Delhi – 110 001.
(ii) Through e-mail to : secy-ftc@nic.in
(iii) Through website http://fincomindia.nic.in by clicking on hyperlink ‘call for suggestions’
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Annex 2.9
(Para 2.10)
Rules of Procedure
In exercise of the powers vested by Clause (4) of Article 280 of the Constitution of India and Section 8 of the Finance
Commission (Miscellaneous Provisions) Act, 1951 (XXXIII of 1951), the Thirteenth Finance Commission lays down the
following rules to determine its procedure, viz.
1. Formal meetings of the Commission shall be held as and when necessary for taking evidence and/or for meeting
representatives of the Central and State Governments and other public bodies and persons. The time and place of
such meetings shall be fixed by the Secretary after ascertaining the convenience of the Chairman and Members.
2. Internal meetings of the Commission shall be informal.
3. All meetings of the Commission shall be held in private session.
4. Meetings shall ordinarily be so arranged that all the Members are present. If for unavoidable reasons, any Member is
unable to attend, meetings may still be held if at least three Members including the Chairman are present. If for any
reason, the Chairman is unable to attend, he may nominate one of the members to chair the meeting.
5. Such officer(s) of the Commission shall be present at the meetings of the Commission as are so directed by the
Secretary, in consultation with the Chairman.
6. The minutes of the proceedings of informal meetings shall be maintained by the Secretary in the form of a
Minute-book and shall be circulated to the members. The minutes shall be put up for confirmation in the next
meeting of the Commission.
7. No verbatim record of the proceedings of the formal meetings of the Commission shall ordinarily be kept. When no
verbatim record is kept, a summary of the proceedings of the meetings shall be prepared by or under the direction of
the Secretary as soon as possible and shall be circulated to the Members of the Commission. When a verbatim record
is kept, the portion relating to each witness shall be sent to him before it is finally taken on record.
8. No information relating to the meetings or the work of the Commission shall be furnished to the press by any
member of the staff except under the direction of the Chairman or Secretary.
9. The Secretary of the Commission, under the general direction of the Chairman, shall be in overall charge of the
office of the Commission and shall be responsible to the Commission for its proper functioning.
10. All communications from the Commission, other than a formal report, shall be signed by the Chairman or the
Secretary (or by an officer not below the rank of a Deputy Secretary authorised by the Secretary to sign on his
behalf) as may be appropriate, but no communication purporting to express the views of the Commission shall
be issued without its approval.
11. The Secretary shall submit to the Commission all communications or proposals relating to the terms and
conditions of service of the Chairman/ Members of the commission or such matters, which personally concern
them. Action in such matters will be taken only in consultation with the Chairman/ Member(s)/Commission, as
may be appropriate.
12. The Secretary shall keep the Commission informed from time to time of all important matters pertaining to the
work of the Commission.
13. All appointments to gazetted posts of the Commission, including those made by transfer from other Governments
or Government Departments except those where the approval of Appointments Committee of Cabinet is required,
shall be made by the Secretary. The appointments requiring the approval of the Appointments Committee of
Cabinet and those of consultants shall be made with the approval of the Chairman.
14. Appointments of staff other than those referred to in Rule 13, including staff obtained on transfer from other
Governments or Government Departments shall be made by the Secretary, or by an officer not below the rank of
Deputy Secretary, duly authorised by him.
15. The provisions of rules 13 and 14 shall be subject to the condition that in respect of appointments of the personal
staff of the Members of the Commission, the Member concerned shall be consulted.
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16. The Secretary may grant leave, whether regular or casual, to a Gazetted Officer. As regards the non-Gazetted staff,
the leave may be sanctioned by an officer not below the rank of Deputy Secretary authorised by the Secretary for
the purpose. In the case of the personal staff of the Chairman and members of the Commission, they will be duly
consulted before leave is granted to them.
17. The budget and the revised estimates of the Commission shall be submitted to the Commission for approval
before they are communicated by the Secretary to the Finance Ministry.
18. All communications received by the Commission dealing with the matters on which they have to submit a report
to the President, all material placed before the Commission and all discussions at the meeting of the Commission
shall be treated as confidential.
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Annex 2.10
(Para 2.10)
Commission Meetings
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Eighty-first meeting 1 June 2009 One hundred and third meeting 6 October 2009
Eighty-second meeting 12 June 2009 One hundred and fourth meeting 8 October 2009
Eighty-third meeting 16 June 2009 One hundred and fifth meeting 22 October 2009
Eighty-fourth meeting 18 June 2009 One hundred and sixth meeting 27 October 2009
Eighty-fifth meeting 25 June 2009 One hundred and seventh meeting 29 October 2009
Eighty-sixth meeting 7 July 2009 One hundred and eighth meeting 3 November 2009
Eighty-seventh meeting 9 July 2009 One hundred and ninth meeting 5 November 2009
Eighty-eighth meeting 17 July 2009 One hundred and tenth meeting 10 November 2009
Eighty-ninth meeting 31 July 2009 One hundred and eleventh meeting 13 November 2009
Ninetieth meeting 4 August 2009 One hundred and twelfth meeting 14 November 2009
Ninety-first meeting 6 August 2009 One hundred and thirteenth meeting 17 November 2009
Ninety-second meeting 11 August 2009 One hundred and fourteenth meeting 19 November 2009
Ninety-third meeting 25 August 2009 One hundred and fifteenth meeting 24 November 2009
Ninety-fourth meeting 27 August 2009 One hundred and sixteenth meeting 26 November 2009
Ninety-fifth meeting 29 August 2009 One hundred and seventeenth meeting 30 November 2009
Ninety-sixth meeting 1 September 2009 One hundred and eighteenth meeting 1 December 2009
Ninety-seventh meeting 3 September 2009 One hundred and nineteenth meeting 5 December 2009
Ninety-eighth meeting 8 September 2009 One hundred and twentieth meeting 8 December 2009
Ninety-ninth meeting 15 September 2009 One hundred and twenty first meeting 15 December 2009
One hundred and twenty second meeting 16 December 2009
Hundredth meeting 18 September 2009
One hundred and twenty third meeting 18 December 2009
One hundred and first meeting 22 September 2009
One hundred and second meeting 29 September 2009
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Annex 2.11
(Para 2.15)
Meeting with Economists and Economic Administrators held at India Habitat Centre,
New Delhi on 23 January 2008
LIST OF PARTICIPANTS
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LIST OF PARTICIPANTS
1 Shri Narayan Valluri, IAS (Retd.), (Former Member Finance Commission), Hyderabad
2 Shri S. Narayanan, IAS (Retd.), (Former Permanent Representative to WTO), Hyderabad
3 Prof. J.V.M. Sarma, Department of Economics, University of Hyderabad
4 Dr. G.R. Reddy, Consultant, Centre for Economics & Social Studies, Hyderabad
5 Shri Venkatramani Bhaskar, Chief Electoral Officer, Government of Andhra Pradesh, Hyderabad
6 Dr. Paramita Dasgupta, Dean of Training & Conferences, Administrative Staff College of India, Hyderabad
7 Shri B.K. Bhattacharya, Retired Chief Secretary, Government of Karnataka, Bangalore
8 Shri S.L. Rao, Chairman, Institute for Social and Economic Change, Bangalore
9 Prof. Prabhat Patnaik, Vice Chairman, State Planning Board, Thiruvananthapuram
10 Dr. Pinaki Chakraborty, Associate Fellow, Centre for Development Studies, Thiruvananthapuram
11 Prof. M.A. Oommen, Institute of Social Sciences, Thiruvananthapuram
12 Dr. Paul A. Appasamy, Vice Chancellor, Karunya University, Coimbatore
13 Dr. D.K. Srivastava, Director, Madras School of Economics, Chennai
14 Prof. U. Shankar, Madras School of Economics, Chennai
15 Dr. R. Srinivasan, Full-time Member, State Planning Commission, Chennai
16 Dr. C. Bhujanga Rao, Madras School of Economics, Chennai
17 Shri K. Venkatesan, Former Secretary Expenditure, Chennai
18 Dr. S. Narayan, Former Union Finance Secretary, Chennai
19 Shri G. Ramachandran, Member, Sixth Finance Commission, Chennai
20 Dr. K. Venkataraman, Chairman, Public Expenditure Round Table Trust, Chennai
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LIST OF PARTICIPANTS
1 Shri Tarun K. Datta, Former Chief Secretary, Government of West Bengal, Kolkata
2 Dr. Padmaja Mishra, Professor of Economics, Utkal University, Bhubaneswar
3 Prof. Amita Majumder, Indian Statistical Institute, Kolkata
4 Shri Debabrata Bandyopadhyay, Former Secretary, Government of India, Kolkata
5 Prof. Abhirup Sarkar, Indian Statistical Institute, Kolkata
6 Shri S.K. Misra, Chairman, Chhattisgarh State Electricity Regulatory Commission, Raipur
7 Dr. Shaibal Gupta, Member Secretary, Asian Development Research Institute, Patna
8 Prof. Nripendra Nath Bandyopadhyay, Member, Third State Finance Commission, Kolkata
9 Prof. Ajitava Raychaudhuri, Department of Economics, Jadavpur University, Kolkata
10 Dr. Hanumant Yadav, Visiting Professor of Economics, Hidayatullah National Law University, Raipur
11 Prof. H.K. Pradhan, Xavier Labour Relations Institute (XLRI), Jamshedpur, Jharkhand
12 Dr. Ramakant Agrawal, Xavier Institute of Social Services, Ranchi, Jharkhand
13 Dr. R.K. Panda, Professor in Economics, Utkal University, Bhubaneswar
14 Prof. Achin Chakraborty, Prof. of Economics, Institute of Development Studies, Calcutta University, Kolkata
15 Shri G. Bhattacharjee, Principal Director, Audit (Central), West Bengal, Kolkata
16 Shri Venkatramani Bhaskar, Chief Electoral Officer, Government of Andhra Pradesh, Hyderabad
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LIST OF PARTICIPANTS
1 Dr. Pradeep Apte, Department of Economics, Fergusson College, Pune
2 Dr. Vijay Paranjpye, Environmental Economist, Pune
3 Prof. Desarda, Aurangabad
4 Dr. Vinayak B. Bishe, Aurangabad
5 Prof. Niresh Shah, Director, Sardar Patel Institute of Economics & Social Research, Ahmedabad
6 Shri A.K. Agarwal, IAS (Retd.), Chairman, Pay Commission, MP
7 Shri C. Rajasekhar, Associate Professor of Economics, National Law Institute, Bhopal
8 Prof. P.F.X. D’Lima, Panaji, Goa
9 Shri V.K. Shunglu, Former Comptroller and Auditor General of India
10 Dr. V.V. Rama Subba Rao, IAS (Retd.)
11 Prof. Dhanmanjin Sathe, Head, Department of Economics, University of Pune
12 Shri V. Ramani, Director General, YASHADA, Pune
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Meeting with Economists and Economic Administrators held at Hotel Pinewood, Shillong,
Meghalaya on 10 April 2008
LIST OF PARTICIPANTS
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Annex 2.12
(Para 2.16)
Meeting with Chairmen and Members of Previous Finance Commissions held at India
International Centre, New Delhi on 2 May 2008
LIST OF PARTICIPANTS
278
Chapter 2: Annex
Annex 2.13
(Para 2.17)
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280
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Annex 2.14
(Para 2.20 (i))
Workshop on Issues Relating to ‘Finances of Local Self Government’ held at J.N.Tata Hall
Infosys Technologies, Bengaluru on 26 February 2008
LIST OF PARTICIPANTS
281
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Annex 2.15
(Para 2.20 (ii))
Meeting on ‘Priorities Before the Thirteenth Finance Commission’ held at Y.B Chavan
Centre, Mumbai on 27 March 2008
LIST OF PARTICIPANTS
282
Chapter 2: Annex
Government Officials
32 Shri V.K. Aggarwal, IAS, Principal Secretary, Development and Commercial Planning Department, Government
of Maharashtra
33 Shri Sunil Soni, Principal Secretary Reforms, Government of Maharashtra
President & Vice President of Associations
34 Shri Vinod Gupta, Multinet Worldwide
35 Shri M.N. Chaini, President (Elect.) IMC
Yashwantrao Chavan Pratishthan Committee
36 Shri Sharad Kale, General Secretary, YCP
Thirteenth Finance Commission
37 Dr.Vijay Kelkar, Chairman
38 Dr. Indira Rajaraman, Member
39 Shri Sumit Bose, Secretary
40 Shri B.S. Bhullar, Joint Secretary
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Annex 2.16
(Para 2.20 (iii))
LIST OF PARTICIPANTS
284
Chapter 2: Annex
Annex 2.17
(Para 2.20 (iv))
LIST OF PARTICIPANTS
285
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FPEPR Staff
286
Chapter 2: Annex
Annex 2.18
(Para 2.20 (v))
LIST OF PARTICIPANTS
287
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40 Shri Nilanjan Patra, Research Scholar, Centre for Economic Studies and Planning, JNU, New Delhi
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Annex 2.19
(Para 2.20 (vi))
Seminar Organised by National Institute of Public Finance and Policy (NIPFP) on ‘Issues
Related to India’s Fiscal System’ on 15 November 2008
LIST OF PARTICIPANTS
289
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Annex 2.20
(Para 2.20 (vii))
LIST OF PARTICIPANTS
290
Chapter 2: Annex
291
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Annex 2.21
(Para 2.20 (viii))
Workshop on ‘Empowering the Panchayati Raj Institutions’ held at the Institute of Rural
Management, Anand (IRMA), Gujarat on 22-23 December 2008
LIST OF PARTICIPANTS
292
Chapter 2: Annex
293
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Annex 2.22
(Para 2.20 (ix))
Workshop on ‘Development of Good Governance Index for the States in India’ Organised
by National Institute of Administrative Research (NIAR), Mussoorie at
India International Centre, New Delhi on 14 November 2008
LIST OF PARTICIPANTS
Uttarakhand
1 Shri Indu Kumar Pande, IAS, Chief Secretary, Government of Uttarakhand
2 Shri Rajeev Gupta, Principal Resident Commissioner, Government of Uttarakhand
Karnataka
3 Dr. L. Shanthakumari Sunder, IAS, Additional Chief Secretary and Development Commissioner, Government
of Karantaka
4 Smt. Ranjini Sri Kumar, Principal Secretary, Department of Personnel and Administrative Reforms
(Administrative Reforms, Training & Political Pension), Government of Karnataka
Madhya Pradesh
5 Shri R.C. Sahni, IAS, Chief Secretary, Government of Madhya Pradesh
6 Shri Anurag Jain, Secretary, IT & CM, Government of Madhya Pradesh
Himachal Pradesh
7 Shri T.G. Negi, IAS, Principal Secretary, AR, Government of Himachal Pradesh
Rajasthan
8 Dr. Rakesh Hooja, IAS, Additional Chief Secretary, Government of Rajasthan and Director, HCM Rajasthan
State Institute of Public Administration (HCMRIPA)
9 Shri Chetan Prakash Mandawaria, Joint Director, Planning & Finance, Government of Rajasthan
Delhi
10 Dr. K. B. Rai, Adviser (AR), Government of NCT of Delhi
11 Shri Suyash Prakash, Director (Training ), Directorate of Training, Government of NCT of Delhi
Uttar Pradesh
12 Shri Vidhya Nand Garg, Principal Secretary (Basic Education), Government of Uttar Pradesh
13 Shri Pankaj Agarwal, CEO, Greater NOIDA Authority, Government of Uttar Pradesh
Maharashtra
14 Smt. Anna Dani, IAS, Principal Secretary (A&S), Home Department, Government of Maharashtra
15 Shri Sanjay Sethi, Commissioner, Municipal Administration, Mumbai
16 Shri Baldev Singh, IAS, Secretary, Rural Development and PRI, Mumbai
Manipur
17 Shri K. Mangi Singh, Director, Planning, Government of Manipur
Nagaland
18 Ms. Yetoly Verma, Assistant Resident Commissioner, Government of Nagaland
Tamil Nadu
19 Shri Praveen Kumar, IAS, Special Secretary Finance, Government of Tamil Nadu
Orissa
20 Shri Guru Prasad Mishra, OSD to Chief Secretary, Government of Orissa
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Haryana
21 Smt. Firoza Mehrotra, IAS, Financial Commissioner & Principal Secretary, Government of Haryana
22 Shri R.K. Bishnoi, Economic Statistical Adviser, Government of Haryana
23 Shri V.K. Kundu, IAS, Secretary, Information Technology, Government of Haryana
Assam
24 Shri Diwakar Nath Misra, IAS, Joint Secretary, Revenue, Assam Board of Revenue & Joint Secretary,
Government of Assam
Kerala
25 Shri D.K. Singh, Additional Resident Commissioner, Government of Kerala
Arunachal Pradesh
26 Shri Marto Bagra, Assistant Resident Commissioner, Government of Arunachal Pradesh
27 Shri Padamvir Singh, IAS, Vice Chairman, NIAR & Joint Director, LBSNAA
28 Shri Alok Kumar, IAS, Executive Director, NIAR, LBSNAA
29 Dr. Moana Bhagabati, Assistant Professor, NIAR, LBSNAA
30 Prof. V.K. Natraj, Former Director, Madras Institute of Development Studies, Chennai
31 Dr. Rajiv Sharma, IAS, Director General, Centre for Good Governance, Hyderabad
32 Shri A. Srinivas Kumar, Dy. Executive Director, Centre for Good Governance, Hyderabad
33 Shri R. Sridharan, IAS, Joint Secretary, Planning Commission
34 Shri N.C. Saxena, IAS (Retd.), Former Secretary, Planning Commission, New Delhi
35 Ms. Meenakshi Sharma, Director, Department of Administrative Reforms & Public Grievances, Government of
India
36 Shri Durga Prasad Duvvuri, Consultant, ASI
37 Shri Sudhir Kumar Suthar, Jawaharlal Nehru University, New Delhi
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Annex 2.23
(Para 2.20 (x))
LIST OF PARTICIPANTS
1 Dr. Shankar N. Acharya, International Council for Research on International Economic Relations (ICRIER),
New Delhi
2 Dr. Rajiv Kumar, Director, ICRIER, New Delhi
3 Dr. Suresh Tendulkar, Chairman, Economic Advisery Council to PM
4 Dr. Subir V. Gokarn, Credit Rating Information Service of India Ltd. (CRISIL)
5 Dr. Dharmakirti Joshi, CRISIL
6 Dr. Arvind Virmani, Chief Economic Adviser, Department of Economic Affairs
7 Dr. M. Govinda Rao, Director, National Institute of Public Finance & Policy (NIPFP), New Delhi
8 Prof. Kirit S. Parikh, Member, Planning Commission
9 Dr. Pronab Sen, Chief Statistician of India & Secretary, Department of Statistics
10 Dr. Suman Bery, National Council for Applied Economic Research (NCAER), New Delhi
11 Dr. Surjit Bhalla, OXUS
12 Dr. Shashank Bhide, National Council for Applied Economic Research (NCAER), New Delhi
13 Dr. Sudipto Mundle, National Institute of Public Finance & Policy (NIPFP), New Delhi
14 Dr. Saumitra Choudhury, Member, Economic Advisery Council to PM
15 Dr. Ajit Ranade, Chief Economist, Aditya Birla Group
16 Prof. Pulin Nayak, Director, Delhi School of Economics, Delhi University, Delhi
17 Dr. Urjit Patel, President Business Development, Reliance Industries Ltd., Mumbai
18 Dr. Isher Judge Ahluwalia, Chairperson, ICRIER
19 Dr. Ila Patnaik, Senior Fellow, NIPFP, New Delhi
20 Dr. Jahangir Aziz, J.P.Morgan, Mumbai
21 Shri B.M. Misra, Adviser, Reserve Bank of India, Mumbai
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Annex 2.24
(Para 2.22)
LIST OF PARTICIPANTS
Andhra Pradesh
1 Shri K. Rosaiah, Finance Minister
Assam
2 Shri H.S. Das, Principal Secretary, Finance
Arunachal Pradesh
3 Shri Kalikho Pul, Finance Minister
4 Shri H.K. Paliwal, Principal Secretary, Power and Coordination
5 Shri Amit Singla, Joint Secretary, Finance
Bihar
6 Shri Sushil Kumar Modi, Deputy Chief Minister
7 Shri Naveen Kumar, Principal Secretary, Finance
8 Shri S.K. Mujumdar, Principal Secretary, Commercial Tax
Chattisgarh
9 Shri D.K. Misra, Principal Secretary, Finance
Gujarat
10 Shri Saurabhbhai Patel, Minister of State for Finance
11 Shri Tapan Ray, Principal Secretary, Economic Affairs, Finance
Himachal Pradesh
12 Shri Arvind Mehta, Principal Secretary (Finance)
Jharkhand
16 Prof. Stephen Marandi, Finance Minister
17 Ms. Rajbala Verma, Secretary, Finance
Karnataka
18 Dr. V.S. Acharya, Home Minister
Kerala
19 Dr. T.M. Thomas Isaac, Finance Minister
20 Shri P. Mara Pandiyan, Secretary, Taxes
Madhya Pradesh
21 Shri Raghavji, Finance Minister
22 Shri Ashok Das, Principal Secretary, Finance
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Meghalaya
23 Shri B.K. Dev Verma, Principal Secretary, Finance
Manipur
24 Shri Ajay N. Jha, Principal Secretary, Finance
Maharashtra
25 Shri Jayantarao Patil, Ministry for Finance & Planning
26 Shri Sunil Soni, Principal Secretary, Reforms
Mizoram
27 Shri Zoramthanga, Chief Minister
28 Shri Lalhuapzauva, Adviser to Chief Minister
29 Shri Lalthansanga, Finance Secretary
Nagaland
30 Shri Neiphiu Rio, Chief Minister
31 Shri Lalthara, Additional Chief Secretary
32 Shri R.C. Acharjee, Adviser, Finance
Orissa
33 Shri Prafulla Chandra Ghadai, Finance Minister
34 Shri R.N. Senapati, Principal Secretary, Finance Department
Punjab
35 Shri Manpreet Singh Badal, Finance Minister
36 Shri D.S. Kalha, Principal Secretary, Finance
37 Shri S.S. Brar, Financial Commissioner, Taxation & Secretary
Sikkim
38 Shri H.B. Rai, Additional Commissioner, Finance Department
Tamil Nadu
39 Shri K. Gnanadesikan, Principal Secretary, Finance Department
40 Shri Rajeev Ranjan, OSD & Secretary , Commercial Taxes & Registration Department
Tripura
41 Shri Badal Choudhury, Finance Minister
42 Shri R.K. De Choudhury, Special Secretary, Finance
Uttar Pradesh
43 Shri Lalji Verma, Parliamentary Affairs, Finance, Health and Education Minister
Uttarakhand
44 Dr. Ramesh Pokhriyal Nishank, Health Minister
45 Shri L.M. Pant, Secretary, Finance Department
West Bengal
46 Dr. Asim K. Dasgupta, Finance Minister
47 Shri Dipankar Mukhopadhyay, Principal Secretary, Finance Department
48 Smt. Ujjaini Datta, OSD
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Rajasthan
49 Shri S.N. Gupta, Chairman, Public Grievances Redressal Committee
50 Shri Vinod Pandya, Director, Finance Commission
51 Shri Rajiv Maharishi, Principal Resident Commissioner
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Annex 2.25
(Para 2.23)
Meeting between the Finance Commission and the Planning Commission held
on 23 October 2009 at Yojana Bhavan, New Delhi
LIST OF PARTICIPANTS
Planning Commission
300
Chapter 2: Annex
Annex 2.26
(Para 2.24)
301
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Annex 2.27
(Para 2.25)
302
Chapter 2: Annex
Annex 2.28
(Para 2.25)
303
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305
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Chapter 2: Annex
307
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308
Chapter 2: Annex
309
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Chapter 2: Annex
311
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Chapter 2: Annex
313
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Chapter 2: Annex
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Chapter 2: Annex
317
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Chapter 2: Annex
319
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321
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Chapter 2: Annex
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7 Shri R.S. Sharma Principal Secretary, Drinking Water & Sanitation and Science
& Technology
8 Shri N.N Pandey Secretary, Energy
9 Smt. Rajbala Verma Secretary, Finance
10 Shri A.K. Pandey Principal Secretary, Food, Public Distribution & Consumer Affairs
11 Shri Sukhdeo Singh Secretary, Forests & Environment
12 Dr. Pradip Kumar Secretary, Health, Medical Education & Family Welfare
13 Shri J.B. Tubid Secretary, Home and Personnel, Administrative Reforms & Raj Bhasa
14 Shri U. K. Sangma Principal Secretary, Housing and Social Welfare
15 Shri K.K. Khandelwal Secretary, Industries, Mines & Geology
16 Shri B.K. Tripathy Principal Secretary, Chief Minister Office
17 Shri P.K. Jajoria Secretary, Information Technology
18 Shri Vishnu Kumar Secretary, Institutional Finance & Programme Implementation
19 Shri Prashant Kumar Secretary, Law
20 Shri S.K. Chaudhary Development Commissioner
21 Shri Sudhir Prasad Principal Secretary, Registration and Civil Aviation
22 Shri R.S. Poddar Principal Secretary, Revenue & Land Reforms
23 Shri N.N. Sinha Secretary, Road Construction
24 Shri S.K. Satpathy Secretary, Rural Development
25 Shri Arun Kumar Singh Secretary, Tourism
26 Shri Shailesh Kumar Singh Secretary, Urban Development
27 Shri Visnnu Dayal Ram Director General, Police
28 Shri C.R.Sahay Principal Chief Conservator, Forest
29 Shri Jayant Munigala Secretary, Excise
30 Shri Niranjan Kumar Additional Finance Commissioner, Finance
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8 (i.) Shri Supriyo Bhattacharya Central Organising Secretary, Jharkhand Mukti Morcha
(ii.) Prof. Ashok Kr. Singh District President, Jharkhand Mukti Morcha
9 (i.) Shri Gautam Sagar Rana State President, Rashtriya Janta Dal
(ii.) Shri Ramchandra Chandravanshi MLA, Rashtriya Janta Dal
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331
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Chapter 2: Annex
333
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15 Shri Ram Avtar Yadav Sarpanch Kamtaun Kasiya, Janpad Panchayat-Obedullaganj, Raisen
16 Shri Harihar Mogre Sarpanch Ratanpur, Janpad Panchayat-Bagli, Dewas
17 Smt. Samrath Bai Sarpanch Tigriya Chhota, Janpad Panchayat-Dewas
18 Shri Sunil Sood Mayor, Bhopal
19 Smt. Uma Shashi Sharma Mayor, Indore
20 Smt. Asha Maurya Mayor, Ratlam
21 Smt. Soni Bai Mehar Mayor,Ujjain
22 Ms. Bimla Pandey Mayor, Satna
23 Shri Haribabu Aggarwal Chairman, Vidisha
24 Shri Raghuraj Chouradiya Chairman, Neemuch
25 Shri Kanhaiya Ram Raghuvanshi Chairman, Chhindwara
26 Shri Pyara Singh Chairman, Chhatarpur
27 Shri Vishnu Chaurasiya Chairman, Maihar, Satna
28 Ms. Satyabhama Chairperson, Shahdol
29 Shri Gopal Seth Chairman, Dhamnod, Khargone
30 Shri Kailash Chourasiya Chairman, Pathariya
31 Shri Bhupendra Dwivedi Chairman, Essagargh, Guna
32 Smt. Manjulata Shivhare Chairperson, Narsinghgarh, Rajgarh
Representatives of Trade & Industry
1 Dr. R.S. Goswami President, MP Laghu Udyog Sangh, Bhopal
2 Shri Vipin Kumar Jain General Secretary, MP Laghu Udyog Sangh, Bhopal
3 Shri B.S. Khargaonkar President, Confederation of Indian Industries, Bhopal
4 Shri Sanjay Khandelwal President, Association of Industries, Raisen
5 Shri A.K. Bhasin President, Association of Industries, Raisen
6 Shri Jagdish Mittal Secretary, Gwalior Industries Association, Gwalior
7 Shri G.D. Laddha President, MP Chamber of Commerce & Industries, Gwalior
8 Shri R. K. Khetan Vice President, Gwalior
9 Shri Ashok Jaiswal President, Association of Industries, Indore
10 Shri Shalabh Sharma Vice President (Bhopal Division) Federation of Madhya
Pradesh Chamber of Commerce & Industries, Bhopal
11 Shri Arun Jain Vice President (Jabalpur Division)
12 Shri S. Pal Deputy Chairman MP Textile Mills Association, Indore
13 Shri Gautam Kothari President, Pithampur Ayodyogik Sangthan, Indore
14 Shri Darshan Katariya General Secretary, Pithampur Ayodyogik Sangthan, Indore
15 Dr. Ajay Narang State In-charge, Laghu Udyog Bharti, Madhya Pradesh, Bhopal
16 Shri Ullas Vaidya President, Laghu Udyog Bharti, MP, Bhopal
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5 Shri Mohan Singh Pawar State Secretary, Rashtrawadi Congress Party, Madhya
Pradesh
6 Shri Prakash Kumar State President, Student Congress, Rashtrawadi Congress
Party, Madhya Pradesh
7 Comrade Shailendra Kumar Shaili Bhartiya Communist Party, Madhya Pradesh
8 Comrade Roop Singh Chouhan Bhartiya Communist Party, Madhya Pradesh
9 Shri Pramod Pradhan Member, Rajya Sachiv Mandal,
Madhya Pradesh, Communist Party of India (M)
10 Ms. Sandhya Shaili Member, Rajya Sachiv Mandal, Madhya Pradesh, Communist Party
of India (M)
11 Shri I.S. Maurya Bahujan Samaj Party
12 Shri Rajaram Executive State Secretary, Bahujan Samaj Party
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Chapter 2: Annex
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Chapter 2: Annex
1 Shri P.K. Sangma Chief Executive Member, Garo Hills Autonomous District
Council, Tura
2 Shri O.R. Marak Executive Member, Garo Hills Autonomous District Council, Tura
3 Shri S.R.R. Marak Deputy Secretary, Executive Committee, Garo Hills
Autonomous District Council, Tura
4 Shri R.B. Marak Council Engineer, Garo Hills Autonomous District Council, Tura
5 Shri J.R. Pyrtuh Executive Member, Jaintia Hills, Autonomous District
Council, Jowai
6 Shri S.M. Suna Executive Member, Jaintia Hills, Autonomous District
Council, Jowai
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Chapter 2: Annex
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Chapter 2: Annex
1 Col. L.C. Sailo Working President, Mizoram People’s Conference Party (MPC)
2 Dr. Kenneth Chawngliana Mizoram People’s Conference Party (MPC)
3 Shri T.C. Pachhunga Mizo National Front (MNF)
4 Shri Rosangzuala Mizo National Front (MNF)
5 Shri C. Chawngkunga General Secretary, Mizoram Pradesh Congress Committee (MPCC)
6 Shri Hiphei, Ex-MP General Secretary, Mizoram Pradesh Congress Committee (MPCC)
7 Wg. Cdr. Lalzawma Chairman, Vigilance Cell, (MPCC)
8 Shri Zasanga General Secretary (MPCC)
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Chapter 2: Annex
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Chapter 2: Annex
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4 Shri Raj Kishore Mohanty Former President & Expert Representative, Orissa Young
Entrepreneurs’ Association, Cuttack
5 Shri Abani Kanungo President, Orissa Industries Association, Cuttack
6 Dr. Sarat Sahoo Chairman, Orissa Industries Federation, Cuttack
350
Chapter 2: Annex
2 Shri Aimaduddin Ahmad Minister, Medical & Health, Family Welfare and
Medical Education
3 Shri Bharat Singh Minister, Rural Development & Panchyati Raj
4 Smt. Beena Kak Minister, Tourism, Art, Culture and Archeology, Women &
Child Development, Printing and Stationary
5 Shri Brij Kishore Sharma Minister Transport, Sanskrit Education, Language &
Linguistic Minorities and Devasthan
6 Shri Harji Ram Burdak Minister, Agriculture, Animal Husbandry & Fisheries
7 Shri Hema Ram Chaudhary Minister, Revenue, Colonisation, Sainik Kalyan
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8 Shri Mahendra Jeet Singh Malviya Minister, Tribal Area Development, Public Grievances Redressal,
Technical and Engineering Education
9 Shri Mahipal Maderna Minister, Water Resources, Indira Gandhi Canal Project, Public Health
and Engineering, Ground Water, Command Area Development
10 Shri Master Bhanwar Lal Minister, Labour & Employment,
Primary Education, Secondary Educations
11 Shri Parsadi Lal Meena Minister, Co-operative, Small Savings and State Lotteries
12 Shri Shanti Kumar Dhariwal Minister Home, Home Guard & Civil Defence, Law & Justice,
Parliamentary Affairs, Urban development & Housing, Local Self Bodies
13 Dr. Jitendra Singh Minister, Energy & Non Conventional Energy Sources, Information
Technology & Communication, Disaster Management & Relief, Higher
Education
14 Shri Rejendra Pareek Minister, Industries, Non Resident Indians, Economics &
Statistics and Excise
15 Shri Ram Kishore Saini State Minister, Social Justice and Empowerment, Jail
16 Smt. Golma Devi State Minister, Khadi and Gramodhyog, Home Guard & Civil Defence
17 Shri Ashok Bairwa State Minister, Information & Public Relations, Election, Traffic,
Sanskrit Education, Language and Linguistic Minorities, Devsthan
18 Shri Bharosi Lal Jatav State Minister, Estate, Motor Garage, Agriculture,
Animal Husbandry, Fisheries
19 Shri Gurmeet Singh Kunnar State Minister, Agriculture Marketing, Water Resources,
Indira Gandhi Canal Project, PHED, Ground Water,
Command Area Development
20 Shri Mangi Lal Garasia State Minister, Youth Affairs & Sports, Primary Education,
Secondary Education, Labour & Employment
21 Shri Babu Lal Nagar State Minister, Food & Civil Supplies, Dairy,
Technical Education, Agriculture
22 Shri Ram Lal Jat State Minister, Forest & Environment, Mines
23 Shri Brahamdev Kumawat Parliamentary Secretary
24 Shri Dilip Choudhary Parliamentary Secretary
25 Shri Nana Lal Ninama Parliamentary Secretary
352
Chapter 2: Annex
1 Dr. K.L. Jain Honorary Secretary General, Rajasthan Chamber of Commerce and
Industry (RCCI)
2 Shri D. S. Bhandari Director, Alishan Petro Products Ltd., Rajasthan Chamber of
Commerce and Industry (RCCI)
3 Shri Rajeev Jain Sambhav Gems Ltd, Rajasthan Chamber of Commerce and Industry
(RCCI)
4 Shri A.K. Godika Industrial Adviser, Rajasthan Chamber of Commerce and
Industry(RCCI)
5 Shri R.S. Gemini President, Federation of Rajasthan Trade & Industry (FORTI)
6 Shri Prem Biyani Secretary General, (FORTI)
7 Shri R.C. Shah Charted Accountant, (FORTI)
8 Shri O.P. Agarwal Charted Accountant, (FORTI)
9 Prof. Man Chand Khandela Director, Subodh Management Institute, FORTI
10 Shri Shankar Lal Agarwal Charted Accountant, (FORTI)
11 Shri Arun Agarwal Vice President, FORTI
12 Shri R.D. Batwara Secretary, RCCI
13 Shri Basant Khaitan Chairman, Rajasthan Committee, PHD Chamber of Commerce &
Industry
14 Shri G.S. Kandoi Chairman, KG Petrochem Ltd. , PHD Chamber of Commerce &
Industry
15 Smt. Malti Jain Resident Director , PHD Chamber of Commerce & Industry
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Chapter 2: Annex
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Chapter 2: Annex
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Chapter 2: Annex
359
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360
Chapter 2: Annex
361
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Chapter 2: Annex
363
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364
Chapter 2: Annex
365
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Chapter 2: Annex
6 Shri Nanda Gopal Bhattacharjee Minister, Water Resources, Investigation & Development
7 Dr. Mortoza Hossain Minister, Disaster Management, Agriculture Marketing
8 Shri Mrinal Banerjee Minister, Power & Non-Conventional Energy Sources
9 Shri Subhas Naskar Minister, Irrigation & Waterways
10 Shri Chakradhar Maikap Minister, Technical Education & Training
11 Smt Mira Pande Additional Chief Secretary, Water Resource Investigation &
Development
12 Shri Sunil Mitra Additional Chief Secretary, Power & Non-Conventional Energy
Sources
13 Shri Samar Ghosh Principal Secretary, Health & Family Welfare
14 Shri P. K. Pradhan Principal Secretary, Urban Development
15 Smt Jaya Dasgupta Principal Secretary, Development & Planning
16 Shri Dipankar Mukhopadhyay Principal Secretary, Finance
17 Smt N. Chatterjee Principal Secretary, School Education
18 Dr. M. N. Roy Principal Secretary, Panchayat & Rural Development
19 Shri K. Sathiavasan Principal Secretary, Public Works
20 Shri M. L. Meena Principal Secretary, Environment and Disaster Management
21 Shri S. Siddharath Principal Secretary, Bio-Technology and Information
Technology
22 Shri C. M. Bachhawat Principal Secretary, Finance (Revenue) and Excise
23 Shri Pawan Agarwal Secretary, Municipal Affairs
24 Shri Sanjeev Chopra Secretary, Agriculture
25 Shri Arun Bal Secretary, Technical Education & Training and Sundarban
Affairs
26 Shri Tapan Mitra Secretary, Irrigation & Waterways
Representatives of Local Bodies
1 Shri Bikash Ranjan Bhattacharya Mayor, Kolkata Municipal Corporation
2 Shri Uday Sarkar Sabhadhipati, Burdwan Zilla Parishad
3 Smt. Mani Thapa Sabhadhipati, Silliguri Mahakuma Parishad
4 Dr. Santanu Jha Chairman, Kalyani Municipality
5 Shri Pinaki Dhamali Chairman, Uttarpara-Kotrang Municipality
6 Smt. Sabina Yeasmin Sabhadhipati, Malda Zilla Parishad
Representatives of Political Parties
1 Dr. Dhanpat Ram Agarwal Bharatiya Janta Party
2 Prof. Tathagata Roy Bharatiya Janta Party
3 Shri Nripendra Nath Bandyopadhyay Communist Party of India
4 Shri Chandan Chakraborty Communist Party of India
5 Shri Mridul De Communist Party of India (M)
6 Shri Madan Ghose Communist Party of India (M)
7 Shri Hafiz Alam Sairani All India Forward Bloc
8 Dr. Barun Mukherjee All India Forward Bloc
9 Shri Manoj Bhattacharya Revolutionary Socialist Party
10 Shri Amar Chaudhuri Revolutionary Socialist Party
11 Shri Pradip Kumar Bhattacharya West Bengal Pradesh Congress Committee
12 Smt. Maitreyi Saha West Bengal Pradesh Congress Committee
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5 Shri K.K. Navada President, Bengal National Chamber of Commerce & Industry
368
Chapter 2: Annex
Annex 2.29
(Para 2.26)
Washington DC
Canada
20 October 2008 Ministry of Finance, Provincial (i) Presentation on Financial Transfers and Public
Government of Quebec/ Ministry Finance Issues
(ii) Discussions on Different Issues Pertaining to
of International Relations, Quebec Environmental and Sustainable Development -Policy
of Quebec Government
(iii) Discussions on GST System in Quebec
21 October 2008 Ottawa
Department of Finance; Federal- Presentations on by Fiscal Policy Division
Provincial Relations Branch
Programme at the Dept. of (i) Brief Comments from the Assistant Deputy Minister,
Intergovernmental Affairs Intergovernmental Policy and Planning
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Chapter 2: Annex
Annex 2.30
(Para 2.27)
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21 Integrating Environment, Ecology and Climate The Energy Resource Institute, New Delhi
Change Concern in Indian Fiscal Federalism
Framework
22 Strengthening Justice Delivery Systems Centre for Policy Research, New Delhi
23 Financing Disaster Management in India National Institute of Disaster Management (NIDM),
New Delhi
24 Revenue Implications of Introduction of Goods Foundation for Public Economics and Policy Research,
and Service Tax New Delhi
25 Rationalizing Taxation of Petroleum Products National Institute of Public Finance & Policy (NIPFP)
26 Study of State Level Public Sector Undertakings In-house : Finance Commission
27 Study of State Irrigation Departments In-house : Finance Commission
28 Impact of Goods and Service Tax on India’s National Council of Applied Economic Research,
International Trade New Delhi
29 Development Barriers and Potentials in the North Bengal University, Darjeeling
Border Regions of West Bengal
30 Review of Finances of Power Sector in States Mercados Energy Market India Pvt Ltd, New Delhi
31 Building Employee and Pensioner Database 1. Shri Subhash Garg, IAS, Principal Secretary,
and MIS for Effective Fiscal and Manpower Government of Rajasthan
Cost/Benefits Planning by State Governments 2. Shri Gautam Bhardwaj, Managing Director, Invest
India Economic Foundation Pvt Ltd, Noida
372
Chapter 2: Annex
Annex 2.31
(Para 2.37)
Sl Name Designation/Organisation
No
1 Mr. Joshua Felman, Resident Representative, IMF
2 Shri N. Gopalaswami Chief Election Commissioner
3 Dr. S. K. Rao Director General, Administrative Staff College of India (ASCI),
Hyderabad
4 Ms. Isabel Guerrero Director, World Bank (New Delhi Office)
5 Dr. D Subbarao Union Finance Secretary
6 Dr. M. Govinda Rao Director, National Institute of Public Finance and Policy (NIPFP),
New Delhi
7 Mr. T. Kondo Country Director, Asian Development Bank (ADB)
8 Dr. R.K. Pachauri Director General, The Energy Research Institute(TERI)
9 Dr. Pratap Bhanu Mehta President and Chief Executive, Centre for Policy Research (CPR),
New Delhi
10 Dr. Partha Mukhopadhyay Senior Fellow, Centre for Policy Research (CPR), New Delhi
11 Prof. Bibek Debroy Professor, Centre for Policy Research (CPR), New Delhi
12 Dr. Rashpal Malhotra Director General, Centre for Research in Rural and Industrial
Development (CRRID), Chandigarh
13 Dr. Pronab Sen Secretary, Department of Statistics and Programme Implementation
14 Shri Pawan Chamling Chief Minister, Sikkim
15 Dr. Vinay Lall Director General, Society for Development Studies, New Delhi
16 Shri V. Krishna Murthy Chairman, National Manufacturing Competitiveness Council, New Delhi
17 Shri V. Govindarajan Member Secretary, National Manufacturing Competitiveness
Council, New Delhi
18 Shri Yugandhar Member, Planning Commission
19 Dr. Y. K. Alagh Chairman, Institute of Rural Management, Anand (IRMA), Gujarat
20 Dr. K. Srinath Reddy President, Public Health Foundation of India, New Delhi
21 Shri Arvind Kejriwal Social Activist & Crusader of Right to Information
22 Dr. Amit Bhaduri Professor of Political Economy, University of Pavia
23 Prof. Vivek Bhandari Director, Institute of Rural Management, Anand (IRMA)
24 Mr. Roy Bahl Founding Dean, Andrew Young School and Regents Professor of
Economics; Professor of Public Administration, University of Kentucky
(Public Finance Expert)
25 Dr. Basant K. Pradhan Professor, Institute of Economic Growth, New Delhi
26 Shri Ranjit S. Chavan DG, All India Institute of Local Self Government, Mumbai
27 Shri Ramesh Ramanathan Co-founder ‘Janagraha NGO’ and National Technical Adviser JNNURM
(Micro Finance Specialist)
28 Mr. Gagan Rai Managing Director & CEO, National Securities Depository Ltd. (NSDL), Mumbai
29 Shri V.K. Shunglu Former C&AG of India
30 Shri Mani Shankar Aiyar Union Minister of Panchayati Raj
31 Prof. K.C. Sivaramakrishnan Centre for Policy Research (CPR), New Delhi
32 Mr. Sanjaya P. Panth, Senior Resident Representative, IMF
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Sl Name Designation/Organisation
No
61 Shri C. Banerjee Director General, Confederation of Indian Industry (CII), New Delhi
62 Shri Venu Srinivasan President, Confederation of Indian Industry (CII), New Delhi
67 Shri Nirmal Singh Member, Board for Industrial & Financial Reconstruction, New Delhi
374
Chapter 4: Annex
Annex 4.1
(Para 4.53)
1. FC-VIII (1984-89) 53.48 6.65 60.13 35.80 4.07 39.87 100.00 4.83
2. FC-IX (1989-95) 52.98 8.48 61.46 35.91 2.63 38.54 100.00 4.89
3. FC-X (1995-2000) 62.06 6.55 68.61 29.52 1.87 31.39 100.00 4.09
4. FC-XI (2000-2005) 58.38 11.00 69.38 28.65 1.97 30.62 100.00 4.16
5. FC-XII (2005-10) 56.48 11.55 68.03 28.55 3.43 31.97 100.00 5.21
2008-09 (RE) 56.04 9.69 65.74 30.92 3.34 34.26 100.00 5.37
2009-10 (BE) 53.62 11.22 64.84 30.88 4.28 35.16 100.00 5.23
Note: These are revenue account transfers. Prior to FC-XII, Plan assistance also carried a loan component, which varied as a share of
total assistance from 70 per cent for general category States, to 10 per cent for special category states. Prior to 1999-2000, there was
also on-lending by the Centre to states of net collections in small savings schemes.
Source: Basic data from Indian Public Finance Statistics, Union Finance Accounts and Central Budget documents
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Annex 4.2
(Para 4.57)
376
Chapter 6: Annex
Annex 6.1
(Para 6.42)
Notes: 1. Nominal GDP growth rate has been assumed to be 12.50 per cent in 2010-11, 13.0 per cent in 2011-12 and 13.5 per cent in
2012-13, 2013-14 and 2014-15.
2. Tax Revenue (Net) is the Divisible Pool obtained by deducting cost of collection, cesses and surcharges and taxes of UTs
from Tax Revenue (Gross).
377
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Annex 6.2
(Para 6.42)
378
Chapter 6: Annex
Annex 6.3
(Para 6.42)
Notes: Nominal GDP growth rate has been assumed to be 12.50 per cent in 2010-11, 13.0 per cent in 2011-12 and 13.5 per cent in
2012-13, 2013-14 and 2014-15.
379
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Annex 6.4
(Para 6.42)
380
Chapter 7: Annex
Annex 7.1
(Para 7.6)
381
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Annex 7.2
(Para 7.16)
382
Chapter 7: Annex
Annex 7.3
(Para 7.27)
383
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Annex 7.4
(Para 7.68)
Debt Stock
(Rs. crore)
State Outstanding Debt Outstanding Non Interest Outstanding NSSF
as on Bearing Debt as on Loans as on
31 March 2010 31 March 2008 31 March 2009
1 Andhra Pradesh 124039.22 10818.01 24208.71
2 Arunachal Pradesh 3335.78 112.16 542.68
3 Assam 25935.67 1362.39 4716.62
4 Bihar 58397.05 6515.07 15269.20
5 Chhattisgarh 18846.13 2313.78 4736.25
6 Goa 7448.15 198.60 2703.73
7 Gujarat 115648.80 6556.89 44315.67
8 Haryana 40089.85 2112.40 10455.93
9 Himachal Pradesh 22470.28 1171.91 3889.22
10 Jammu & Kashmir 25692.05 2834.26 3158.90
11 Jharkhand 25066.90 2334.07 8506.41
12 Karnataka 80796.86 8427.65 19350.51
13 Kerala 70193.12 2656.51 11879.99
14 Madhya Pradesh 67176.45 4950.67 14174.43
15 Maharashtra 198084.21 17259.51 73279.22
16 Manipur 5008.01 849.92 880.26
17 Meghalaya 3783.30 608.46 293.49
18 Mizoram 3897.55 313.03 137.42
19 Nagaland 4930.45 290.83 112.67
20 Orissa 45730.15 2206.82 6822.27
21 Punjab 66165.89 1013.31 21428.87
22 Rajasthan 91120.60 5625.97 23768.90
23 Sikkim 2494.51 236.02 112.94
24 Tamil Nadu 92000.35 4128.80 24675.74
25 Tripura 5228.67 237.89 1096.14
26 Uttar Pradesh 213349.24 39318.84 44214.61
27 Uttarakhand 35403.16 1508.81 4972.48
28 West Bengal 162740.77 4931.74 62234.52
All States 1615073.15 130894.32 431937.78
384
Chapter 7: Annex
Annex 7.5
(Para 7.80)
(Rs. crore)
State 2012-13 2013-14 2014-15
1 Andhra Pradesh 9142.43 9599.55 10079.53
2 Arunachal Pradesh 384.73 403.97 424.16
3 Assam 2069.63 2173.11 2281.77
4 Bihar 3051.24 3203.80 3363.99
5 Chhattisgarh 2448.29 2570.70 2699.24
6 Goa 269.67 283.16 297.31
7 Gujarat 4126.33 4332.65 4549.28
8 Haryana 1651.35 1733.91 1820.61
9 Himachal Pradesh 288.53 302.95 318.10
10 Jammu & Kashmir 102.60 107.73 113.12
11 Jharkhand 1813.49 1904.16 1999.37
12 Karnataka 3867.14 4060.49 4263.52
13 Kerala 1302.57 1367.69 1436.08
14 Madhya Pradesh 2915.35 3061.12 3214.17
15 Maharashtra 5643.97 5926.17 6222.48
16 Manipur 488.21 512.62 538.25
17 Meghalaya 593.83 623.52 654.70
18 Mizoram 328.94 345.38 362.65
19 Nagaland 255.31 268.08 281.48
20 Orissa 2115.77 2221.56 2332.64
21 Punjab 763.44 801.61 841.69
22 Rajasthan 1963.00 2061.15 2164.21
23 Sikkim 230.99 242.54 254.67
24 Tamil Nadu 3870.36 4063.88 4267.07
25 Tripura 254.28 266.99 280.34
26 Uttar Pradesh 7058.13 7411.04 7781.59
27 Uttarakhand 784.87 824.12 865.32
28 West Bengal 3193.70 3353.39 3521.06
All States 60978.15 64027.06 67228.41
GCS 55196.23 57956.04 60853.84
SCS 5781.92 6071.02 6374.57
385
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Annex 7.6
(Para 7.84)
(Rs. crore)
State 2010-11 2011-12 2012-13 2013-14 2014-15 2010-15
1 Andhra Pradesh 613.79 644.48 676.70 710.54 746.06 3391.57
2 Arunachal Pradesh 29.53 31.00 32.55 34.18 35.89 163.15
3 Assam 411.17 431.73 453.32 475.98 499.78 2271.98
4 Bihar 854.48 897.21 942.07 989.17 1038.63 4721.55
5 Chhattisgarh 225.00 236.25 248.07 260.47 273.49 1243.29
6 Goa 36.05 37.86 39.75 41.74 43.82 199.22
7 Gujarat 446.52 468.84 492.29 516.90 542.75 2467.30
8 Haryana 693.47 728.15 764.55 802.78 842.92 3831.87
9 Himachal Pradesh 193.16 202.82 212.96 223.61 234.79 1067.35
10 Jammu & Kashmir 250.57 263.10 276.25 290.06 304.57 1384.54
11 Jharkhand 330.29 346.80 364.14 382.35 401.47 1825.05
12 Karnataka 358.44 376.36 395.18 414.94 435.68 1980.60
13 Kerala 297.81 312.70 328.33 344.75 361.98 1645.56
14 Madhya Pradesh 391.96 411.56 432.13 453.74 476.43 2165.82
15 Maharashtra 963.09 1011.24 1061.81 1114.90 1170.64 5321.68
16 Manipur 52.42 55.04 57.79 60.68 63.71 289.63
17 Meghalaya 14.27 14.98 15.73 16.52 17.34 78.85
18 Mizoram 1.95 2.05 2.15 2.26 2.37 10.79
19 Nagaland 11.07 11.63 12.21 12.82 13.46 61.20
20 Orissa 367.31 385.68 404.96 425.21 446.47 2029.63
21 Punjab 739.49 776.46 815.29 856.05 898.85 4086.14
22 Rajasthan 486.24 510.56 536.08 562.89 591.03 2686.81
23 Sikkim 2.13 2.24 2.35 2.47 2.59 11.78
24 Tamil Nadu 430.11 451.62 474.20 497.91 522.80 2376.64
25 Tripura 31.36 32.92 34.57 36.30 38.11 173.26
26 Uttar Pradesh 2853.66 2996.34 3146.16 3303.47 3468.64 15768.28
27 Uttarakhand 240.29 252.31 264.92 278.17 292.08 1327.76
28 West Bengal 771.10 809.65 850.14 892.64 937.28 4260.81
All States 12096.74 12701.57 13336.65 14003.48 14703.66 66842.10
386
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State : Bihar
388
Chapter 7: Annex
State : Goa
389
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State : Haryana
390
Chapter 7: Annex
391
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State : Karnataka
392
Chapter 7: Annex
393
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State : Manipur
394
Chapter 7: Annex
State : Mizoram
395
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State : Orissa
396
Chapter 7: Annex
State : Rajasthan
397
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Chapter 7: Annex
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400
Annex 8.1
(Para 8.25)
Criteria and Weights Suggested by the States in their Memoranda Submitted to the Thirteenth Finance Commission
State Income Population Area Tax Effort Fiscal Per Capita Population SC&ST Performance Environment Populaion
Distance Discipline Income Below Population in Controlling and Forest and HDI
Poverty Population Conservation
Line Growth Rela-
tive to Average
Special Category States
Arunachal Pradesh 10
Assam 70 5 10 5
Himachal Pradesh
Jammu and Kashmir
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim 10
Tripura 40 15 7.5 5 10
Uttarakhand 40 15 20 7.5 7.5
General Category States
Andhra Pradesh 30 15 10 20
Bihar 70 20 10
Chhattisgarh 57 10 3 8
Goa
Gujarat 10 50 10 7.5 7.5
Haryana 15 50 5 10 10
Jharkhand 40 20 10 5 5
Karnataka 30 10 30 20
Kerala 10 70 5 10 5
Madhya Pradesh 50 15 15 5
Maharashtra 12.5 30 15 10 10
Orissa 20 50 10
Punjab 20 25 5 5 15
Rajasthan 50 12.5 25 5 2.5
Tamil Nadu 25 30 7.5 7.5 15 15
401
Uttar Pradesh 60 25 7.5 7.5
Chapter 8: Annex
West Bengal
Annex 8.1 (Contd ....)
402
Criteria and Weights Suggested by the States in their Memoranda Submitted to the Thirteenth Finance Commission
State Index of Inverse of Debt- Area Cost of Availability Availablility of Achievement in Infrastructure Revenue
Infrastruc- Infrastruc- GSDP Distance Living of Facilities Cultivable Land Administration Distance Raising
ture ture Index Ratio Standard like Road, in Proportion to Efficiency * Capacity
Rail & Air Link Total Area of State
Special Category States
Arunachal Pradesh
Assam 10
Himachal Pradesh
Thirteenth Finance Commission
Criteria and Weights Suggested by the States in their Memoranda Submitted to the Thirteenth Finance Commission
State Forest Interna- Poverty Backward- Contribu- Standard Decen- HDI*** Social Contribu- Share of Expendi-
Cover tional Ratio ness Index tion** Deviation tralisation Indicator tion to Primary ture on
Border of State Index Central Sector Infrastruc-
Length Income Taxes in Total ture and
GSDP Social Sector
Special Category States
Arunachal Pradesh
Assam
Himachal Pradesh
Jammu and Kashmir
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura 5 5
Uttarakhand 10
General Category States
Andhra Pradesh 25
Bihar
Chhattisgarh 10
Goa
Gujarat 15
Haryana 5 5
Jharkhand 10 5
Karnataka 10
Kerala
Madhya Pradesh 7.5
Maharashtra 12.5 10
Orissa
Punjab 10 20
Rajasthan
Tamil Nadu
Uttar Pradesh
West Bengal
403
*Achievement in Administration Efficiency: Investment in HRD & growth in literacy rate, IMR & MMR in health sector, crime rate and maintenance of peace & tranquility efficiency.
** Contribution: Tax collected from a state as a percentage of the tax collected from all states.
Chapter 8: Annex
Annex 8.2
(Para 8.27)
Population of States
(crores)
404
Chapter 8: Annex
Annex 8.3
(Para 8.29)
Area of States
405
Thirteenth Finance Commission
Annex 8.4
(Para 8.32)
406
Chapter 8: Annex
Annex 8.5
(Para 8.32)
Note: Own Tax Revenue of states includes VAT and CST compensation.
Source: Basic data from State Finance Accounts (various years)
407
Thirteenth Finance Commission
Annex 8.6
(Para 8.36)
Notes: 1. Own revenue receipts include VAT & CST compensation to states.
2. Own revenue receipts and revenue expenditure are net of lotteries.
Source: Basic data from State Finance Accounts (various years)
408
Chapter 9: Annex
Annex 9.1
(Para 9.81)
Outstanding Debt
Base year and future projections
(as per cent of GSDP)
Sl. No. State 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
1 Andhra Pradesh 30.9 30.3 29.6 28.9 28.2 27.6
2 Arunachal Pradesh 64.0 61.3 58.2 55.2 52.5 50.1
3 Assam 28.1 28.2 28.3 28.4 28.4 28.5
4 Bihar 49.4 48.2 46.4 44.6 43.0 41.6
5 Chhattisgarh 21.3 22.0 22.5 23.0 23.5 23.9
6 Goa 33.7 33.0 31.9 30.8 29.9 29.1
7 Gujarat 30.1 29.4 28.8 28.1 27.6 27.1
8 Haryana 22.0 22.4 22.6 22.7 22.8 22.9
9 Himachal Pradesh 52.1 49.7 47.0 44.4 42.1 40.1
10 Jammu & Kashmir 56.4 56.1 55.1 53.6 51.6 49.3
11 Jharkhand 29.0 29.0 28.5 27.8 27.3 26.9
12 Karnataka 25.9 26.2 26.0 25.7 25.4 25.2
13 Kerala 33.2 32.8 32.3 31.7 30.7 29.8
14 Madhya Pradesh 38.8 38.4 37.6 36.8 36.0 35.3
15 Maharashtra 26.4 26.3 26.1 25.8 25.5 25.3
16 Manipur 68.9 65.8 62.9 60.1 57.0 54.3
17 Meghalaya 33.5 33.1 32.7 32.3 32.0 31.7
18 Mizoram 87.5 87.3 85.7 82.9 79.2 74.8
19 Nagaland 57.7 56.8 55.8 54.9 53.5 52.3
20 Orissa 31.5 31.0 30.6 30.2 29.8 29.5
21 Punjab 43.0 42.5 41.8 41.0 39.8 38.7
22 Rajasthan 41.5 40.4 39.3 38.3 37.3 36.5
23 Sikkim 71.8 68.4 65.2 62.1 58.8 55.9
24 Tamil Nadu 23.6 24.1 24.5 24.8 25.0 25.2
25 Tripura 44.9 45.2 44.9 44.6 44.2 43.8
26 Uttar Pradesh 49.9 48.7 46.9 45.1 43.4 41.9
27 Uttarakhand 43.3 42.2 41.1 40.0 38.5 37.2
28 West Bengal 42.0 40.6 39.1 37.7 35.9 34.3
Total General Category 33.1 32.6 31.9 31.2 30.5 29.8
Total Special Category 43.5 42.7 41.7 40.7 39.5 38.3
Grand Total 33.7 33.2 32.5 31.7 31.0 30.3
As per cent of GDP 27.1 26.7 26.1 25.5 24.9 24.3
Note:
1. The outstanding debt for the base year has been estimated using the outstanding debt for 2007-08 as reported in Finance Accounts
and estimated fiscal deficits for 2008-09 and 2009-10.
2. The fiscal deficit for 2008-09 is assumed to be the lower of the revised estimate for 2008-09 and 3.5 per cent of GSDP. The fiscal deficit
for 2009-10 is assumed to be 4 per cent of GSDP.
3. For projecting the outstanding debt for 2010-11, the fiscal deficit for 2010-11 is normatively fixed at 3 per cent of GSDP or that assumed
for 2008-09, whichever is higher.
4. For the remaining years of the award period, outstanding debt has been projected on the basis of fiscal deficits prescribed in Annex 9.2
409
Thirteenth Finance Commission
Annex 9.2
(Para 9.81)
Fiscal Deficit
Past trends and future targets
(as per cent of GSDP)
Sl. No. State 2005-06 2006-07 2007-08 2011-12 2012-13 2013-14 2014-15
1 Andhra Pradesh 3.4 2.0 2.7 3.0 3.0 3.0 3.0
2 Arunachal Pradesh 8.6 -3.0 0.2 3.0 3.0 3.0 3.0
3 Assam -0.6 -1.1 -1.0 3.0 3.0 3.0 3.0
4 Bihar 4.4 3.4 1.7 3.0 3.0 3.0 3.0
5 Chhattisgarh 0.8 -0.1 0.2 3.0 3.0 3.0 3.0
6 Goa 4.5 3.2 3.0 3.0 3.0 3.0 3.0
7 Gujarat 2.9 2.2 1.6 3.0 3.0 3.0 3.0
8 Haryana 0.3 -1.0 0.9 3.0 3.0 3.0 3.0
9 Himachal Pradesh 2.6 3.0 1.6 3.0 3.0 3.0 3.0
10 Jammu & Kashmir 9.5 6.3 7.6 4.7 4.2 3.6 3.0
11 Jharkhand 8.3 1.4 2.5 3.0 3.0 3.0 3.0
12 Karnataka 2.0 2.2 2.2 3.0 3.0 3.0 3.0
13 Kerala 3.3 2.6 3.6 3.5 3.5 3.0 3.0
14 Madhya Pradesh 3.8 2.1 1.9 3.0 3.0 3.0 3.0
15 Maharashtra 3.9 2.2 -0.5 3.0 3.0 3.0 3.0
16 Manipur 5.4 8.7 -1.7 3.5 3.5 3.0 3.0
17 Meghalaya 2.8 1.0 2.4 3.0 3.0 3.0 3.0
18 Mizoram 13.8 6.0 11.2 6.4 5.2 4.1 3.0
19 Nagaland 5.6 2.7 6.2 3.5 3.5 3.0 3.0
20 Orissa 0.3 -0.9 -1.2 3.0 3.0 3.0 3.0
21 Punjab 2.4 0.5 3.5 3.5 3.5 3.0 3.0
22 Rajasthan 3.8 2.5 1.9 3.0 3.0 3.0 3.0
23 Sikkim 7.9 4.8 2.8 3.5 3.5 3.0 3.0
24 Tamil Nadu 1.0 1.4 1.2 3.0 3.0 3.0 3.0
25 Tripura 1.2 -1.3 0.1 3.0 3.0 3.0 3.0
26 Uttar Pradesh 3.5 3.0 3.9 3.0 3.0 3.0 3.0
27 Uttarakhand 7.5 3.0 5.1 3.5 3.5 3.0 3.0
28 West Bengal 4.1 4.3 3.7 3.5 3.5 3.0 3.0
Total General Category 3.1 2.1 1.8 3.1 3.1 3.0 3.0
Total Special Category 3.8 1.9 2.3 3.4 3.3 3.1 3.0
Grand Total 3.1 2.1 1.9 3.1 3.1 3.0 3.0
410
Chapter 9: Annex
Annex 9.3
(Para 9.81)
Revenue Deficit
Past trends and future targets
(as per cent of GSDP)
Sl. No. State 2005-06 2006-07 2007-08 2011-12 2012-13 2013-14 2014-15
1 Andhra Pradesh 0.0 -1.0 0.0 0.0 0.0 0.0 0.0
2 Arunachal Pradesh -6.1 -19.4 -18.5 0.0 0.0 0.0 0.0
3 Assam -2.5 -3.4 -3.4 0.0 0.0 0.0 0.0
4 Bihar -0.1 -2.8 -4.7 0.0 0.0 0.0 0.0
5 Chhattisgarh -2.5 -4.4 -4.3 0.0 0.0 0.0 0.0
6 Goa 0.2 -0.9 -0.9 0.0 0.0 0.0 0.0
7 Gujarat 0.2 -0.7 -0.7 0.0 0.0 0.0 0.0
8 Haryana -1.2 -1.3 -1.6 0.0 0.0 0.0 0.0
9 Himachal Pradesh -0.3 -0.6 -2.4 0.0 0.0 0.0 0.0
10 Jammu & Kashmir -1.4 -1.9 -3.1 0.0 0.0 0.0 0.0
11 Jharkhand 0.0 -1.4 -1.5 0.0 0.0 0.0 0.0
12 Karnataka -1.2 -1.9 -1.5 0.0 0.0 0.0 0.0
13 Kerala 2.5 1.8 2.3 1.4 0.9 0.5 0.0
14 Madhya Pradesh 0.0 -2.5 -3.4 0.0 0.0 0.0 0.0
15 Maharashtra 0.9 -0.2 -2.5 0.0 0.0 0.0 0.0
16 Manipur -8.1 -8.2 -19.9 0.0 0.0 0.0 0.0
17 Meghalaya -1.1 -3.1 -2.1 0.0 0.0 0.0 0.0
18 Mizoram -2.3 -8.0 -3.7 0.0 0.0 0.0 0.0
19 Nagaland -3.8 -9.4 -6.6 0.0 0.0 0.0 0.0
20 Orissa -0.6 -2.4 -3.8 0.0 0.0 0.0 0.0
21 Punjab 1.1 -1.7 2.9 1.8 1.2 0.6 0.0
22 Rajasthan 0.5 -0.4 -0.9 0.0 0.0 0.0 0.0
23 Sikkim -10.4 -11.3 -15.3 0.0 0.0 0.0 0.0
24 Tamil Nadu -0.8 -1.0 -1.4 0.0 0.0 0.0 0.0
25 Tripura -6.6 -8.3 -8.2 0.0 0.0 0.0 0.0
26 Uttar Pradesh 0.4 -1.5 -1.0 0.0 0.0 0.0 0.0
27 Uttarakhand 0.3 -3.0 -1.9 0.0 0.0 0.0 0.0
28 West Bengal 3.1 3.1 2.7 1.6 1.1 0.5 0.0
Total General Category 0.4 -0.7 -1.0 0.3 0.2 0.1 0.0
Total Special Category -2.1 -3.7 -4.1 0.0 0.0 0.0 0.0
Grand Total 0.2 -0.9 -1.2 0.2 0.2 0.1 0.0
411
Annex 9.4
(Para 9.107)
412
Interest Relief on NSSF Loans
(Rs. crore)
Sl. State NSSF Loans Interest to be Paid with Reset Rates Interest Relief
No. Outstanding
2010-11 2011-12 2012-13 2013-14 2014-15 2010-15 2010-11 2011-12 2012-13 2013-14 2014-15 2010-15
on 31/3/2010
1 Andhra Pradesh 22223.26 2000.09 1909.65 1800.56 1691.47 1582.39 8984.17 164.29 155.90 146.47 137.04 127.61 731.31
2 Arunachal Pradesh 480.45 43.24 41.58 39.34 37.10 34.86 196.12 2.82 2.70 2.55 2.40 2.25 12.71
3 Assam 4172.40 375.52 354.74 333.39 312.04 290.69 1666.36 36.33 34.20 32.04 29.87 27.71 160.15
4 Bihar 13269.46 1194.25 1136.58 1069.39 1002.20 935.02 5337.44 112.50 106.32 99.61 92.90 86.19 497.53
Thirteenth Finance Commission
5 Chhattisgarh 4013.99 361.26 345.35 325.99 306.63 287.28 1626.51 28.16 26.78 25.21 23.65 22.08 125.88
6 Goa 2419.36 217.74 208.48 196.80 185.12 173.44 981.58 16.18 15.40 14.50 13.59 12.69 72.36
7 Gujarat 40152.60 3613.73 3439.94 3240.15 3040.37 2840.59 16174.79 318.18 301.07 282.53 263.98 245.43 1411.19
8 Haryana 9528.10 857.53 815.12 767.43 719.73 672.04 3831.85 76.96 72.74 68.23 63.72 59.20 340.85
9 Himachal Pradesh 3445.95 310.14 296.51 279.83 263.14 246.46 1396.08 24.08 22.90 21.54 20.19 18.84 107.55
10 Jammu & Kashmir 2869.34 258.24 245.99 231.70 217.41 203.11 1156.45 22.69 21.48 20.15 18.83 17.50 100.65
11 Jharkhand 7204.06 648.37 619.53 584.71 549.88 515.06 2917.55 50.89 48.39 45.55 42.72 39.88 227.43
12 Karnataka 17806.26 1602.56 1526.59 1438.95 1351.31 1263.67 7183.08 132.77 125.77 118.12 110.47 102.83 589.96
13 Kerala 11121.17 1000.91 957.14 903.34 849.55 795.75 4506.68 73.68 70.10 65.96 61.81 57.67 329.22
14 Madhya Pradesh 13402.04 1206.18 1149.45 1083.17 1016.90 950.62 5406.32 101.34 96.00 90.12 84.25 78.38 450.09
15 Maharashtra 65640.28 5907.63 5625.28 5301.19 4977.09 4653.00 26464.18 503.29 476.51 447.40 418.30 389.20 2234.70
16 Manipur 462.42 41.62 40.46 38.28 36.11 33.93 190.40 2.90 2.80 2.64 2.48 2.32 13.13
17 Meghalaya 253.71 22.83 21.68 20.41 19.14 17.88 101.94 2.02 1.91 1.79 1.67 1.55 8.94
18 Mizoram 127.93 11.51 10.91 10.27 9.63 8.99 51.31 1.02 0.96 0.90 0.84 0.78 4.51
19 Nagaland 102.95 9.27 8.82 8.30 7.79 7.28 41.45 0.83 0.79 0.74 0.69 0.64 3.69
20 Orissa 6303.82 567.34 541.04 509.86 478.68 447.49 2544.42 47.93 45.42 42.63 39.85 37.07 212.90
21 Punjab 19184.10 1726.57 1643.40 1546.77 1450.14 1353.51 7720.38 158.87 150.22 140.82 131.42 122.02 703.34
22 Rajasthan 21941.72 1974.75 1872.31 1761.13 1649.95 1538.77 8796.91 188.16 177.50 166.35 155.20 144.05 831.27
23 Sikkim 105.08 9.46 8.95 8.42 7.89 7.36 42.09 0.84 0.80 0.75 0.70 0.65 3.73
24 Tamil Nadu 23868.04 2148.12 2050.10 1934.02 1817.94 1701.86 9652.05 166.69 158.25 148.81 139.36 129.92 743.04
25 Tripura 1010.36 90.93 86.56 81.51 76.47 71.42 406.89 8.44 7.99 7.49 7.00 6.51 37.44
26 Uttar Pradesh 38734.72 3486.12 3319.65 3125.40 2931.16 2736.91 15599.25 319.36 302.09 283.28 264.47 245.65 1414.85
27 Uttarakhand 4075.46 366.79 349.78 330.09 310.39 290.69 1647.74 28.62 27.18 25.58 23.99 22.40 127.77
28 West Bengal 55430.60 4988.75 4750.48 4473.05 4195.63 3918.20 22326.12 455.85 431.28 404.53 377.77 351.02 2020.46
Total 389349.63 35041.47 33376.06 31443.46 29510.86 27578.26 156950.11 3045.70 2883.42 2706.29 2529.17 2352.04 13516.62
Note: 1. These figures are estimates and have to be reconciled before actual interest relief is given.
2. The figures above pertain to loans only contracted till 2006-07.
3. The actual interest payment and outstanding would be higher and would include loans contracted post 2006-07.
Chapter 9: Annex
Annex 9.5
(Para 9.113)
413
Thirteenth Finance Commission
Annex 10.1
(Para 10.91)
Data Collected by the Commission
1. Details of SFCs appointed in the past and the tenure of the current SFC. Copies of reports submitted.
2. Details of recommendations which had been or were then being implemented relating to assignment of
taxes/devolution/grants-in-aid to PRIs and ULBs.
3. The amounts recommended by SFCs under different categories of transfers (such as assignments of
taxes, devolution, grants-in-aid) in the own tax and non-tax domain.
The impact on the consolidated fund of the states on account of implementation of the recommendations
of the SFC. Efforts made to raise revenues to meet the additional transfer requirements.
4. Recommendations which have not been accepted and the reasons for the same.
5. Whether adjustments were made by the state governments against the funds to be devolved to local
bodies as per State Finance Commission recommendations for any reason, including for recovery of
arrears of dues for electricity and water supply.
6. Whether suggestions made by the Twelfth Finance Commission to improve the quality of SFC reports
have been adopted.
4. Arrangements for maintenance of accounts of village level panchayats and intermediate level panchayats
– status of creation of data base relating to the finances of local bodies - arrangements made for audit of
panchayati and urban local bodies and status thereof.
5. Details of delays if any in passing on Finance Commission grants to local bodies. Number of occasions
when interest was paid by the state governments on account of such delays in passing on FC-XII grants
to local bodies.
6. Status of recovery of O&M costs related to water supply. The number of water supply schemes taken
over by panchayats since 2005-06. Details of PPP/other mechanisms to develop and enhance services
for solid waste management in ULBs. Whether any methods like GIS have been used for mapping of
properties in urban areas and use of computerisation in financial management.
3. Borrowings
1. Whether local bodies are permitted to borrow from the market. Details of such borrowings and
outstanding liabilities wherever permitted during the last five years.
2. Details of guarantees given to local bodies over the last five years. Defaults if any requiring budgetary support.
414
Chapter 10: Annex
1. Basic information on local bodies – number at each level, date of last election, population and area
covered.
2. For each level of panchayati and urban local bodies – details of taxes assigned by the state government
and collection, amount of taxes devolved by state government and grants-in-aid provided details of
agency functions undertaken.
3. For each level of panchayat and urban local bodies – details of functions transferred and level of
expenditure in each function.
4. For each level of panchayati and urban local bodies – details of capital and revenue expenditure and
sources of revenue and capital.
5. Status of provision of water supply and sanitation services in panchayats and urban local bodies.
7. Details of parastatals operating within the jurisdiction of municipalities, and arrangements in place if
any for sharing of income between the parastatal and the municipal bodies . Instances where sale of land
has been used as a financing option.
415
Thirteenth Finance Commission
Annex 10.2
(Para 10.92)
SFC-I Reports – Constitution and Submission
416
Chapter 10: Annex
417
Thirteenth Finance Commission
23 Sikkim 22.7.1998 16.08.1999 June 2000 2000-01 to 1% of the state annual tax revenue to
2004-05 the panchayats
24 TamilNadu 23.4.1994 29.11.1996 28.4.1997 1997-98 to Data Not Available
2001-02
25 Tripura RLBs- RLBs-12.1.1996, Feb 1997 RLBs-Jan.1997 1. 25% of the revenue earned from
23.4.1994, to till date sales tax, additonal sales tax,
purchase tax and luxury tax; 35%
of professional tax; 15% of forest
revenue be devolved to PRIs.
2. Rs. 200/- per head per annum
should be given as grant to PRIs.
ULBs-19.8.1996 ULBs 17.9.1999 ULBs- ULBs-1999-00 5.5 % of state tax revenue to ULBs;
27.11.2000 to 2003-04 90% of this to ULBs till 2001-
02 and 10% after reviewing their
performance
26 Uttar Pradesh 22.10.1994 26.12.1996 20.1.1998 1997-98 to 4% of net tax proceeds to PRIs;
2000-01 discontinued grants-in-aid; 7% of
net tax proceed to ULBs
27 Uttarakhand 31.3.2001 29.06.2002 3.7.2004 2001-02 to 11% of state’s net tax revenue to LBs
2005-06 at the ratio of 42.23:57.77 to PRIs
and ULBs
28 West Bengal 30.5.1994 27.11.1995 22.7.1996 1996-97 to Entertainment tax: 90%; road & PW
2000-01 cess: 80%
418
Chapter 10: Annex
12 Karnataka 25.10.2000 December 2002 Not submitted 2005-06 to 40% of non loan net own revenue
2009-10 receipts to the local bodies; Rs. 5
crore to be common purpose fund
each year
13 Kerala 23.06.1999 08.01.2001 7.01.2004 2001-02 to 1. Government may devolve to the
2005-06 LSGIs, plan funds (excluding state
sponsored schemes) not less than
one-third the annual size of state
plan as fixed by government from
time to time
2. 5.5 per cent of the annual own
tax revenue of the state govern-
ment may be devolved to the LSGIs
as Grant-in-aid for maintenance of
assets under control of the LSGIs
including the transfer of assets
419
Thirteenth Finance Commission
16 Manipur 03.01.2003 Nov. 2004 2nd Dec 2005 2001-02 to 10% of tax and non-tax and state’s
2005-06 share in central taxes of state; PRIs:
(award period 34.38 % and 20.60 % to ULBs
extended
to 31.03.2010)
20 Orissa 5.6.2003 29.09.2004 11.08.2006 2005-06 to 10% of average of state’s gross own
2009-10 tax revenue from 1999-2000 to
2001-02 be devolved to LBs. 10% of
the state’s gross own tax revenue for
the year 2002-03 minus devolvable
amount was recommended as grants-
in-aid for various specific purposes
21 Punjab 21.09.2000 15.2.2002 08.06.2002 2001-02 to 4% of net proceeds from all state
2005-06 taxes be devolved to the LBs
22 Rajasthan 07.05.1999 29.08.2001 26.03.2002 2000-01 to 2.25% of net tax proceeds to the LBs;
2004-05 entertainment tax 15%; royalty on
minerals 1%
23 Sikkim 05.07.2003 30.09.2004 25.02.2006 2005-06 to Grants-in-aid of Rs. 525 lakh to PRIs
2009-10 for 2004-05; for subsequent years a
growth of 5-7% to be allowed each
year. Local area development fund
Rs. 3 lakh per annum
24 TamilNadu 03.03.2000 21.5.2001 8.5.2002 2002-03 to The share of SOTR after excluding
2006-07 entertainment tax of local bodies has
been recommended as under:
i) 2002-04: 8%; ii) 2004-06: 9%;
and iii) for 2006-07: 10%; 5% of the
central devolution should also be
passed on to the local bodies; 10% of
SFC devolution may be used for cap-
ital works in municipalities and cor-
porations, 15% by town panchayats
and 20% by village panchayats
420
Chapter 10: Annex
25 Tripura 29.10.1999 10.04.2003 June 2008 2003-04 to Devolution as per 1st SFC continued
2007-08
26 Uttar Pradesh 25th February, 30.06.2002 30.04.2004 2001-02 to 5% of divisible pool to PRIs; 7.50%
2000 2005-06 of state’s net proceeds of tax revenue
to ULBs; grants in aid: nil
27 Uttarakhand 30.04.2005 06.06.2006 05.10.2006 2006-07 to 10% of tax and non-tax of state;
2010-11 grants in aid : Rs 6.24 lakh to ZP per
annum; Rs.42.75 lakh per annum to
BP; Rs.737.15 lakh per annum to GP;
Buildings of Almora and Pauri Rs.
105 lakh; Bhagirathi river front: Rs
50 lakh
28 West Bengal 14.7.2000 6.2.2002 15.07.2005 2001-02 to Annual untied funds of Rs. 350 crore;
2005-06 entertainment and amusement tax
90% to LBs; cess on road and public
works 80%
421
Thirteenth Finance Commission
422
Chapter 10: Annex
14 Madhya Pradesh 19.7.2005 Submitted on under process 2006-07 to Data not available
1.11.2008 2010-11
15 Maharashtra 15.01.2005 03.06.2006 under 2006-07 to Data not available
consideration 2010-11
16 Manipur Under process
of being
constituted
17 Meghalaya Exempt under Article 243M
18 Mizoram Exempt under Article 243M
19 Nagaland Exempt under Article 243M
20 Orissa 10.09.2008 6.02.2009 under process 2010-11 to 15% of the average gross tax revenue
(Interim report) 2014-15 of the state for the years 2005-06
to 2007-08 @ Rs. 896.17 crore per
annum be devolved to the LBs
21 Punjab 17.09.2004 28.12.2006 22.05.2007 2006-07 to 4% share of net proceeds of all state
2010-11 taxes be devolved to the LBs
22 Rajasthan 15.09.2005 27.02.2008 17.03.2008 2005-06 to 3.50% of net own tax proceeds of
2009-10 the state; entertainment tax 100%;
royalty on minerals 1%
23 Sikkim 04-03-2009 due date of 2010-11 to Report yet to be submitted
submission is 2014-15
30.11.2009
24 TamilNadu 14.12.2004 30.09.2006 10.05.2007 2007-08 to 10% of the state’s own tax revenue
2011-12 be devolved to the LBs; Specific
purpose grant shall be at 0.5% to 1%
of the state’s own tax revenue
25 Tripura 28.03.2008 awaited
26 Uttar Pradesh 23.12.2004 29.08.2008 under 2006-07 to 6% of net tax proceeds to PRIs
consideration 2010-11 and 9% to ULBs which is under
consideration
27 Uttarakhand Not Constituted
28 West Bengal 22.02.2006 31.10.2008 16.07.2009 2008-09 to Untied fund of Rs. 850 crore from
2012-13 2009-10 with annual increase of
12% on a cumulative basis for the
subsequent years
423
Thirteenth Finance Commission
Annex 10.3
(Para 10.92)
424
Chapter 10: Annex
Sl. State Levels of Rural Local FC-XII FC-XIII Levels of Urban Local FC-XII FC-XIII
No. Bodies (including ADCs) Bodies
1 2 3 4 5 6
425
Thirteenth Finance Commission
Sl. State Levels of Rural Local FC-XII FC-XIII Levels of Urban Local FC-XII FC-XIII
No. Bodies (including ADCs) Bodies
1 2 3 4 5 6
426
Chapter 10: Annex
Annex 10.4
(Para 10.117)
State-wise Position of Audit of Local Bodies
427
Thirteenth Finance Commission
16. Manipur C&AG conducts audit of the local bodies u/s.14 of the DPC Audit is in progress and ATIR is being
Act wherever applicable. State government has entrusted the prepared.
audit of PRIs and ULBs under TG&S module to C&AG under
Section 20(1) of C&AG’s (DPC) Act
17. Orissa Audits of PSs and ULBs are conducted by C&AG u/s ATIR is prepared and submitted to state
14(1) and 14(2) of C&AG’s (DPC) Act. Further, the State government.
government has also entrusted the audit of PRIs and ULBs
to C&AG under TGS arrangement under Section 20 (1) of
C&AG’s DPC Act
18. Punjab Audit not entrusted under TG&S
19. Rajasthan Test check of accounts of PRIs are conducted by C&AG as C&AG’s audit report on local bodies
stipulated in Rajasthan State Act. Audit of ULBs and PRIs is prepared and laid in the legislative
are also conducted u/S 14 of C&AG’s (DPC) Act assembly
20. Tamil Nadu Entrustment of the audit of accounts of ULBs and the PRIs C&AG’s audit report on local bodies
(except GPs) has been made to the C&AG under Section is prepared and laid in the legislative
14 and 14(1) of C&AG’s (DPC) Act 1971. Further, TG&S assembly.
entrusted to C&AG for conducting audit of ULBs and PRIs
excluding TG&S of gram panchayat which has not
been entrusted to C&AG
21. Tripura Audit of PRIs and ULBs are conducted by C&AG u/s 14 of Annual Technical Inspection Report
C&AG’s DPC Act. Further, the State government has also is prepared and submitted to state
entrusted the audit of PRIs and ULBs to C&AGs under TGS government.
arrangement
22. Sikkim State government has entrusted the statutory audit of PRIs Annual Technical Inspection Report
to C&AG is prepared and submitted to state
government.
23. Uttar Pradesh C&AG conducts audit of PRIs and ULBs u/s.14 of the C&AG’s Annual Technical Inspection Report
(DPC) Act wherever applicable. In addition audit of PRIs is prepared and submitted to state
and ULBs has been entrusted to C&AG under TG&S module government.
under Section 20 (1) of C&AG’s DPC Act
24. Uttarakhand The audit of PRIs and ULBs are conducted by C&AG u/s.14 of Annual Technical Inspection Report
the DPC Act wherever applicable. State government has also is prepared and submitted to state
entrusted the audit of PRIs and ULBs to C&AG under TG&S government.
arrangement under Section 20 (1) of C&AG’s DPC Act
25. West Bengal Examiner of Local Accounts is the sole auditor of local bodies Report of ELA is submitted to state
as per State Act. He is an officer of the C&AG of India government. The report on PRIs
is laid in the assembly by the state
government.
Source: Office of the Comptroller and Auditor General (C&AG) (September 09)
428
Chapter 10: Annex
Annex 10.5
(Para 10.127)
Template for Reports of the State Finance Commissions
Chapter I Introduction
a. Constitution of the Commission
b. Terms of Reference
c. Design of the Report
Chapter II Approach and Issues
Chapter III Status of Implementation of Previous State Finance Commission Recommendations
a. Action Taken on Recommendations Relating to Devolution of Finances
b. Action Taken on Other Recommendations
Chapter IV State Finances(review over a period of 5 years)
a. Critical Analysis of State Finances
b. Impact of Implementation of Recommendations of Previous State Finance Commission on
State and Local Finances
c. Direct Transfers to Local Bodies(LBs) by State Governments as well as line departments; Nature
and Size of Transfers; Actual Outgo to LBs
d. Direct Absorption by States of Local Body Expenditures (Salaries, Pensions and Other
Liabilities)
e. Guarantees Provided by State Governments on Behalf of LBs
Chapter V Review of the Status of Decentralised Governance and Devolution (separately for rural and urban
local bodies)
a. Functional Devolution and Activity Mapping
Progress towards the delegation envisaged in Articles 243 G and 243 W : this may be assessed
(a) in terms of formal notifications issued (b) linked to financial transfers as outlined in
Section C of Chapter IV
b. Financial Accountability
Quality of accounts maintained, whether technical guidance and supervision of C&AG has
been availed, audit arrangements in place, status of audit of accounts and disposal of audit
objections
c. Administrative Issues
d. Role of Parastatals in Managing Functions Listed in XIth and XIIth Schedules and Linkages
Between them and the Respective Local Bodies
Chapter VI Assessment of the Physical Services Provided by the Local Bodies – Level of Services –Availability,
Access, Coverage and Quality
a. A Quantitative Estimate of Service Deficits with a Brief Account of the Reasons for the Deficit
b. An Inventory of Assets; Current Use and Valuation
c. Basic Services to Slum Settlements; Availability, Coverage, Access, Quality
Chapter VII Assessment of Finances of PRIs
(To be done for Zilla Panchayats, Block Panchayats, and Gram Panchayats separately)
Analysis of all revenue sources in terms of trends, performance and efficiency as well as estimates
of untapped tax potential to be provided
A. Revenue
i. Tax Revenue
a. Taxes on Buildings and Land
b. Taxes on Non-motorized Vehicles
c. Taxes on Advertisements and Hoardings
d. Pilgrim Tax
e. Entertainment Tax
f. Other
g. Unrealised Revenue(accrual basis)
429
Thirteenth Finance Commission
430
Chapter 10: Annex
431
Thirteenth Finance Commission
432
Chapter 10: Annex
Annex 10.6
(Para 10.148)
Aggregate Special Areas Grant
Assam 0.00 36.38 36.38 4.56 7.28 10.91 14.55 14.55 14.55 61.84
Chhattisgarh 105.45 0.00 105.45 13.21 21.09 31.64 42.18 42.18 42.18 179.27
Gujarat 72.11 0.00 72.11 9.03 14.42 21.63 28.84 28.84 28.84 122.59
Himachal Pradesh 1.37 0.00 1.37 0.17 0.27 0.41 0.55 0.55 0.55 2.33
Jharkhand 174.97 0.00 174.97 21.92 34.99 52.49 69.99 69.99 69.99 297.45
Madhya Pradesh 132.55 0.00 132.55 16.60 26.51 39.77 53.02 53.02 53.02 225.34
Maharashtra 39.39 0.00 39.39 4.93 7.88 11.82 15.76 15.76 15.76 66.96
Manipur 0.00 8.82 8.82 1.10 1.76 2.65 3.53 3.53 3.53 15.00
Meghalaya 0.00 22.99 22.99 2.88 4.60 6.90 9.20 9.20 9.20 39.08
Mizoram 0.00 8.89 8.89 1.11 1.78 2.67 3.55 3.55 3.55 15.11
Nagaland 0.00 19.90 19.90 2.49 3.98 5.97 7.96 7.96 7.96 33.83
Orissa 107.99 0.00 107.99 13.53 21.60 32.40 43.20 43.20 43.20 183.58
Rajasthan 18.17 0.00 18.17 2.28 3.63 5.45 7.27 7.27 7.27 30.89
Tripura 0.00 12.16 12.16 1.52 2.43 3.65 4.87 4.87 4.87 20.68
West Bengal 0.00 7.91 7.91 0.99 1.58 2.37 3.16 3.16 3.16 13.44
All States 681.28 117.04 798.32 100 159.66 239.50 319.33 319.33 319.33 1357.14
Notes: 1. Scheduled Areas are areas listed under schedules V & VI of the Constitution.
2. Excluded Areas are areas exempted under Article 243M from the purview of Part IX and IX A of the Constitution.
3. The sum of Rs. 1357.14 crore includes both the basic and performance components of the Total Special Areas Grant.
Source Basic Data: Ministry of Home Affairs, Ministry of Panchayat Raj, State Governments and Census 2001
433
Annex 10.7
Index of Devolution (Non-plan Revenue Grants Aggregated for 2005-06, 2006-07 and 2007-08) (Para 10.153)
434
(Rs. lakh)
Sl. State ULB -Asst. PRI-Asst Asst. to 3 year Transfers NPRE Modulated %age of 2001 pop Weighted
No. (MH 191, (MH 196, LB (3604) TFC to Local (excl. FC Transfers Modulated crore %age
192, 193) 197, 198) Grants Bodies (excl. Grants) to Local Transfers
FC Grants) Bodies to NPRE
Total
1 Andhra Pradesh 818225 339877 71908 94310 1135700 9949189 1135700 11.41 7.62 14.64
2 Arunachal Pradesh 112 0 0 740 -628 323868 0 0.00 0.11 0.00
3 Assam 4656 0 2763 17430 -10011 2870377 0 0.00 2.67 0.00
4 Bihar 29804 148657 1321 104540 75242 4925328 75242 1.53 8.30 2.13
Thirteenth Finance Commission
5 Chhattisgarh 8239 0 131177 39540 99877 1851164 99877 5.40 2.08 1.89
6 Goa 1265 0 0 497 768 596783 768 0.13 0.13 0.00
7 Gujarat 18404 0 38779 67250 -10067 6902516 0 0.00 5.07 0.00
8 Haryana 4400 0 86132 28740 61792 3859709 61792 1.60 2.11 0.57
9 Himachal Pradesh 6366 0 1221 9300 -1713 1820603 0 0.00 0.61 0.00
10 Jammu & Kashmir 37257 0 0 6426 30831 3010731 30831 1.02 1.01 0.17
11 Jharkhand 3062 0 215 0 3277 2083672 3277 0.16 2.69 0.07
12 Karnataka 8404 1508158 469452 60550 1778069 7553761 1778069 23.54 5.29 20.93
13 Kerala 23663 172555 401054 68040 529233 5565104 529233 9.51 3.18 5.10
14 Madhya Pradesh 69169 0 332696 117830 284036 5087805 284036 5.58 6.03 5.67
15 Maharashtra 1404310 0 256931 130790 1530451 15339507 1530451 9.98 9.69 16.26
16 Manipur 439 0 0 1207 -768 538767 0 0.00 0.23 0.00
17 Meghalaya 848 0 0 1740 -892 403898 0 0.00 0.23 0.00
18 Mizoram 200 0 0 1200 -1000 341687 0 0.00 0.09 0.00
19 Nagaland 320 0 0 1840 -1520 547514 0 0.00 0.20 0.00
20 Orissa 16207 52582 78453 51300 95943 3765740 95943 2.55 3.68 1.58
21 Punjab 10879 0 102586 21510 91954 5649154 91954 1.63 2.44 0.67
22 Rajasthan 271562 122094 2569 70300 325925 6281234 325925 5.19 5.65 4.93
23 Sikkim 0 400 0 130 270 495180 270 0.05 0.05 0.00
24 Tamil Nadu 6110 7999 691977 72100 633986 9164701 633986 6.92 6.24 7.26
25 Tripura 333 0 0 650 -317 618252 0 0.00 0.32 0.00
26 Uttar Pradesh 34565 0 862363 206700 690228 13758504 690228 5.02 16.62 14.03
27 Uttarakhand 0 0 69675 7500 62175 1443733 62175 4.31 0.85 0.62
28 West Bengal 195733 70 110911 83200 223514 8691508 223514 2.57 8.02 3.47
Total 2974531 2352394 3712183 1265360 7626352 120876790 7653270 98.09 101.22 100.00
Source Basic Data: 1. Finance Accounts (various year).
2. FC-XII grant release figures provided by Ministry of Finance.
3. Census 2001.
Annex 10.8
(Para 10.154)
GSDP Comparable Estimates at Current Prices (Rs. lakh) Population as on 1 October (crore)
Primary Rest Rural Urban
Sl. State 2004-05 2005-06 2006-07 Total 2004-05 2005-06 2006-07 Total 2004- 2005- 2006- 2004- 2005- 2006-
No (2004-07) (2004-07) 05 06 07 05 06 07
1 Andhra Pradesh 6207329 6878259 7880244 20965832 14983965 17328932 20472339 52785236 5.77 5.83 5.89 2.18 2.21 2.24
2 Arunachal Pradesh 77388 89995 99524 266907 190631 209639 259434 659704 0.09 0.09 0.09 0.03 0.03 0.03
3 Assam 1687466 2238057 2314751 6240274 3421317 3773717 4257828 11452862 2.43 2.46 2.48 0.38 0.39 0.41
4 Bihar 2159349 2667072 2736662 7563083 4477948 5738568 6191584 16408100 7.94 8.07 8.20 0.93 0.95 0.96
5 Chattisgarh 1379078 1752415 1901521 5033014 3117401 3731437 4142813 10991651 1.74 1.76 1.78 0.47 0.48 0.50
6 Goa 150986 197019 255696 603700 997812 1143936 1279192 3420940 0.07 0.07 0.07 0.08 0.08 0.08
7 Gujarat 3576560 4394782 4900496 12871838 14834636 17158159 20959598 52952393 3.31 3.35 3.38 2.07 2.12 2.16
8 Haryana 2176102 2229234 2832996 7238333 5974133 8168923 9083616 23226672 1.58 1.60 1.61 0.69 0.72 0.74
9 Himachal Pradesh 596689 684252 612580 1893521 1740604 2090904 2420912 6252420 0.57 0.58 0.58 0.07 0.07 0.07
10 Jammu & Kashmir 715501 788036 829290 2332827 1688283 1986897 2230837 5906016 0.80 0.81 0.82 0.27 0.28 0.29
11 Jharkhand 1495835 1831882 1826135 5153852 4210711 4940654 4910066 14061431 2.22 2.25 2.28 0.65 0.66 0.67
12 Karnataka 3211104 3902034 3956227 11069365 12708620 14965972 17471405 45145998 3.59 3.61 3.64 1.94 1.98 2.03
13 Kerala 1842513 2276231 2472533 6591277 8946239 10370018 12192155 31508412 2.44 2.46 2.48 0.85 0.85 0.86
14 Madhya Pradesh 3465515 3714554 4049168 11229237 7276157 8168792 9325414 24770363 4.73 4.81 4.89 1.74 1.78 1.82
15 Maharashtra 4776973 5440388 6520668 16738028 33413201 39509050 45115831 118038082 5.77 5.82 5.86 4.49 4.60 4.71
16 Manipur 137011 129923 132640 399574 372317 371872 412426 1156615 0.17 0.17 0.17 0.06 0.06 0.06
17 Meghalaya 205484 202514 240845 648843 400727 446265 515358 1362350 0.19 0.20 0.20 0.05 0.05 0.05
18 Mizoram 48921 52631 53854 155406 208340 235126 262377 705844 0.05 0.05 0.05 0.05 0.05 0.05
19 Nagaland 128443 141057 136152 405652 330248 401891 452263 1184402 0.17 0.17 0.18 0.04 0.04 0.04
20 Orissa 2377511 2629014 3064482 8071008 4690410 5654916 6328396 16673722 3.23 3.26 3.29 0.60 0.61 0.62
21 Punjab 3245570 3532300 4049567 10827437 6061637 7359655 7805639 21226932 1.65 1.66 1.67 0.91 0.93 0.96
22 Rajasthan 3232768 3728998 4189072 11150838 8239482 9684634 11378741 29302856 4.64 4.72 4.80 1.43 1.46 1.49
23 Sikkim 30644 34549 36818 102011 129717 153876 166340 449933 0.05 0.05 0.05 0.01 0.01 0.01
24 Tamil Nadu 2724687 3238325 3935322 9898335 17632523 19873907 23869347 61375777 3.36 3.32 3.28 3.08 3.17 3.26
25 Tripura 235485 230222 243392 709099 658465 725030 785632 2169127 0.28 0.28 0.28 0.06 0.06 0.06
26 Uttar Pradesh 7702646 8987879 9426473 26116998 16992609 19633056 22201762 58827426 14.06 14.31 14.56 3.78 3.88 3.97
27 Uttarakhand 594102 578334 634109 1806545 1684047 1914667 2353452 5952165 0.66 0.67 0.68 0.24 0.25 0.25
28 West Bengal 5409356 5878816 6399653 17687825 14009471 17791585 20368977 52170033 6.03 6.09 6.15 2.36 2.39 2.42
Total of 28 States 59591016 68448772 75730872 203770660 189391652 223532078 257213732 670137463 77.57 78.51 79.42 29.49 30.15 30.81
435
Sources: Population Projections - Report of the Technical Group on Population Projection, National Commission on Population
Comparable GSDP - CSO
Chapter 10: Annex
Thirteenth Finance Commission
Annex 10.9a
(Para 10.154)
Area
Sl. State Area (000) Sq.Km. Area Inter se Shares (%) Inter se Shares
No in Total Area
Rural Urban Rural Urban (%)
1 Andhra Pradesh 270.30 4.75 8.45 6.18 8.40
2 Arunachal Pradesh 83.74 0.00 2.62 0.00 2.56
3 Assam 77.48 0.96 2.42 1.25 2.39
4 Bihar 92.36 1.80 2.89 2.34 2.87
5 Chhattisgarh 133.33 1.87 4.17 2.43 4.13
6 Goa 3.19 0.51 0.10 0.66 0.11
7 Gujarat 190.80 5.23 5.96 6.80 5.98
8 Haryana 42.93 1.28 1.34 1.66 1.35
9 Himachal Pradesh 55.43 0.24 1.73 0.31 1.70
10 Jammu & Kashmir 221.29 0.95 6.92 1.24 6.78
11 Jharkhand 77.92 1.79 2.44 2.33 2.43
12 Karnataka 186.62 5.17 5.83 6.72 5.85
13 Kerala 35.61 3.25 1.11 4.23 1.19
14 Madhya Pradesh 301.28 6.96 9.42 9.05 9.41
15 Maharashtra 300.36 7.36 9.39 9.57 9.39
16 Manipur 22.18 0.14 0.69 0.18 0.68
17 Meghalaya 22.20 0.23 0.69 0.30 0.68
18 Mizoram 20.49 0.59 0.64 0.77 0.64
19 Nagaland 16.43 0.15 0.51 0.20 0.51
20 Orissa 152.91 2.79 4.78 3.63 4.75
21 Punjab 48.28 2.08 1.51 2.71 1.54
22 Rajasthan 336.81 5.43 10.53 7.06 10.45
23 Sikkim 7.10 0.00 0.22 0.00 0.22
24 Tamil Nadu 117.53 12.53 3.67 16.30 3.97
25 Tripura 10.35 0.14 0.32 0.18 0.32
26 Uttar Pradesh 234.37 6.56 7.33 8.53 7.35
27 Uttarakhand 52.69 0.80 1.65 1.04 1.63
28 West Bengal 85.43 3.32 2.67 4.32 2.71
Aggregate of All 3199.41 76.88 100.00 100.00 100.00
States
Source Basic Data : Census 2001
436
Chapter 10: Annex
Annex 10.9b
(Para 10.154)
SC/ST Population
(crore)
Sl. State SC SC Rural ST ST Rural Percentage
No. Rural
SC + ST
1 Andhra Pradesh 1.23 1.02 0.50 0.46 7.08%
2 Arunachal Pradesh 0.00 0.00 0.07 0.06 0.29%
3 Assam 0.18 0.16 0.33 0.32 2.24%
4 Bihar 1.30 1.22 0.08 0.07 6.15%
5 Chhattisgarh 0.24 0.19 0.66 0.63 3.89%
6 Goa 0.00 0.00 0.00 0.00 0.01%
7 Gujarat 0.36 0.22 0.75 0.69 4.31%
8 Haryana 0.41 0.32 0.00 0.00 1.53%
9 Himachal Pradesh 0.15 0.14 0.02 0.02 0.78%
10 Jammu & Kashmir 0.08 0.06 0.11 0.11 0.81%
11 Jharkhand 0.32 0.26 0.71 0.65 4.33%
12 Karnataka 0.86 0.64 0.35 0.29 4.46%
13 Kerala 0.31 0.26 0.04 0.04 1.38%
14 Madhya Pradesh 0.92 0.69 1.22 1.14 8.75%
15 Maharashtra 0.99 0.61 0.86 0.75 6.47%
16 Manipur 0.01 0.00 0.07 0.07 0.35%
17 Meghalaya 0.00 0.00 0.20 0.17 0.81%
18 Mizoram 0.00 0.00 0.08 0.04 0.21%
19 Nagaland 0.00 0.00 0.18 0.15 0.74%
20 Orissa 0.61 0.54 0.81 0.77 6.23%
21 Punjab 0.70 0.53 0.00 0.00 2.53%
22 Rajasthan 0.97 0.77 0.71 0.67 6.89%
23 Sikkim 0.00 0.00 0.01 0.01 0.06%
24 Tamil Nadu 1.19 0.83 0.07 0.06 4.22%
25 Tripura 0.06 0.05 0.10 0.10 0.68%
26 Uttar Pradesh 3.51 3.08 0.01 0.01 14.73%
27 Uttarakhand 0.15 0.13 0.03 0.02 0.71%
28 West Bengal 1.85 1.55 0.44 0.41 9.37%
Total 28 states 16.40 13.27 8.41 7.71 100.00%
Source Basic Data: Census 2001
437
Thirteenth Finance Commission
Annex 10.9c
(Para 10.154)
Rural & Urban Population
438
Annex 10.10a
(Para 10.154)
Income Distance: Per Capita GSDP (Primary Sector)
(Rupees)
Sl. State 2004-05 2005-06 2006-07 Total Average Distance Distance Rural Product share(%)
No. (Total/3) from from Population
Punjab Punjab crore(2001)
PCGSDP PCGSDP
+0.25SD
1 Andhra Pradesh 10762.23 11803.51 13389.25 35954.99 11985.00 9771.84 11012.89 5.54 61012.57 5.76
2 Arunachal Pradesh 8905.36 10392.03 11519.02 30816.41 10272.14 11484.70 12725.75 0.09 1107.25 0.10
3 Assam 6947.74 9109.27 9316.39 25373.40 8457.80 13299.04 14540.08 2.32 33756.68 3.18
4 Bihar 2720.65 3304.68 3336.74 9362.06 3120.69 18636.15 19877.20 7.43 147720.78 13.94
5 Chhattisgarh 7908.01 9932.07 10656.36 28496.44 9498.81 12258.02 13499.07 1.66 22473.33 2.12
6 Goa 22434.77 28930.76 37219.17 88584.71 29528.24 0.00 1241.05 0.07 84.03 0.01
7 Gujarat 10795.21 13122.67 14483.51 38401.39 12800.46 8956.37 10197.42 3.17 32367.40 3.05
8 Haryana 13802.50 13968.51 17549.38 45320.39 15106.80 6650.04 7891.09 1.50 11859.72 1.12
9 Himachal Pradesh 10460.89 11877.32 10530.85 32869.06 10956.35 10800.48 12041.53 0.55 6601.55 0.62
10 Jammu & Kashmir 8963.93 9754.13 10145.46 28863.52 9621.17 12135.66 13376.71 0.76 10202.50 0.96
11 Jharkhand 6743.46 8141.34 8002.70 22887.50 7629.17 14127.67 15368.72 2.10 32200.67 3.04
12 Karnataka 8945.58 10794.31 10871.44 30611.33 10203.78 11553.06 12794.11 3.49 44637.41 4.21
13 Kerala 7554.38 9248.84 9959.05 26762.26 8920.75 12836.08 14077.13 2.36 33186.06 3.13
14 Madhya Pradesh 7324.35 7721.76 8282.88 23328.99 7776.33 13980.51 15221.55 4.44 67554.59 6.37
15 Maharashtra 8285.30 9355.14 11121.35 28761.79 9587.26 12169.57 13410.62 5.58 74801.29 7.06
16 Manipur 8189.54 7665.05 7716.11 23570.70 7856.90 13899.94 15140.98 0.17 2601.11 0.25
17 Meghalaya 10575.60 10311.29 12127.16 33014.05 11004.68 10752.15 11993.20 0.19 2236.39 0.21
18 Mizoram 10704.81 11466.55 11682.00 33853.36 11284.45 10472.38 11713.43 0.04 524.25 0.05
19 Nagaland 7450.28 8083.49 7705.26 23239.03 7746.34 14010.49 15251.54 0.16 2512.31 0.24
20 Orissa 7350.02 8060.75 9321.05 24731.82 8243.94 13512.89 14753.94 3.13 46161.28 4.36
21 Punjab 19685.63 21298.16 24286.72 65270.51 21756.84 0.00 1241.05 1.61 1997.65 0.19
22 Rajasthan 6971.68 7897.91 8718.52 23588.11 7862.70 13894.13 15135.18 4.33 65524.46 6.18
23 Sikkim 6141.08 6855.04 7247.64 20243.76 6747.92 15008.92 16249.96 0.05 781.59 0.07
24 Tamil Nadu 8097.38 9741.67 11990.26 29829.30 9943.10 11813.73 13054.78 3.49 45589.49 4.30
25 Tripura 8547.55 8275.42 8661.64 25484.61 8494.87 13261.97 14503.02 0.27 3848.31 0.36
26 Uttar Pradesh 5478.61 6280.31 6473.34 18232.25 6077.42 15679.42 16920.47 13.17 222772.04 21.02
439
27 Uttarakhand 8982.49 8634.43 9354.02 26970.94 8990.31 12766.52 14007.57 0.63 8839.16 0.83
28 West Bengal 8973.57 9651.01 10400.02 29024.60 9674.87 12081.97 13323.02 5.77 76939.02 7.26
Chapter 10: Annex
440
(Rupees)
Income Distance: Per Capita GSDP (Excluding Primary Sector)
Sl. State 2004-05 2005-06 2006-07 Total Average Distance Distance Urban Product Share
No. (Total/3) from Goa from Goa Population (%)
PCGSDP PCGSDP + (crore 2001)
0.25 SD
1 Andhra Pradesh 68655.05 78425.65 91541.49 238622.20 79540.73 63912.41 77564.34 2.08 161403.17 7.12
2 Arunachal Pradesh 68082.65 70585.49 82622.30 221290.44 73763.48 69689.66 83341.59 0.02 1899.20 0.08
3 Assam 89422.82 95852.60 105131.55 290406.97 96802.32 46650.82 60302.75 0.34 20739.56 0.92
4 Bihar 48186.25 60687.06 64395.05 173268.35 57756.12 85697.03 99348.96 0.87 86252.78 3.81
5 Chhattisgarh 66725.19 77560.53 83642.50 227928.22 75976.07 67477.07 81129.00 0.42 33958.55 1.50
Thirteenth Finance Commission
6 Goa 131985.75 144254.21 154119.47 430359.43 143453.14 0.00 13651.93 0.07 915.47 0.04
7 Gujarat 71779.34 81118.38 96855.81 249753.53 83251.18 60201.97 73853.90 1.89 139807.27 6.17
8 Haryana 86070.21 113757.45 122321.79 322149.45 107383.15 36069.99 49721.92 0.61 30406.47 1.34
9 Himachal Pradesh 267785.25 314421.61 355493.68 937700.55 312566.85 0.00 13651.93 0.06 813.08 0.04
10 Jammu & Kashmir 61728.79 71011.32 77974.02 210714.14 70238.05 73215.10 86867.03 0.25 21861.29 0.96
11 Jharkhand 64960.05 74688.65 72763.28 212411.98 70803.99 72649.15 86301.08 0.60 51726.63 2.28
12 Karnataka 65403.84 75421.92 86252.99 227078.75 75692.92 67760.23 81412.16 1.80 146228.68 6.45
13 Kerala 105435.94 121386.14 141785.73 368607.81 122869.27 20583.87 34235.80 0.83 28302.48 1.25
14 Madhya Pradesh 41804.98 45879.20 51218.84 138903.02 46301.01 97152.14 110804.07 1.60 176922.46 7.81
15 Maharashtra 74400.36 85878.04 95771.06 256049.46 85349.82 58103.32 71755.25 4.11 294921.13 13.02
16 Manipur 62574.29 61875.60 68057.08 192506.97 64168.99 79284.15 92936.08 0.06 5352.82 0.24
17 Meghalaya 82794.85 90520.31 102661.02 275976.17 91992.06 51461.09 65113.02 0.05 2956.85 0.13
18 Mizoram 44046.59 48680.43 53328.71 146055.73 48685.24 94767.90 108419.83 0.04 4781.38 0.21
19 Nagaland 91990.97 110409.49 122897.67 325298.13 108432.71 35020.43 48672.36 0.03 1668.43 0.07
20 Orissa 78408.73 92506.39 101351.64 272266.76 90755.59 52697.56 66349.49 0.55 36606.59 1.62
21 Punjab 66618.72 78797.17 81452.98 226868.87 75622.96 67830.19 81482.12 0.83 67324.69 2.97
22 Rajasthan 57618.76 66319.48 76352.01 200290.25 66763.42 76689.73 90341.66 1.32 119380.85 5.27
23 Sikkim 193607.60 223008.73 231028.12 647644.45 215881.48 0.00 13651.93 0.01 81.73 0.00
24 Tamil Nadu 57309.85 62711.52 73187.42 193208.80 64402.93 79050.21 92702.14 2.75 254782.55 11.25
25 Tripura 110852.73 119248.34 126307.32 356408.39 118802.80 24650.35 38302.28 0.05 2090.35 0.09
26 Uttar Pradesh 44940.91 50658.11 55909.75 151508.77 50502.92 92950.22 106602.15 3.45 368199.37 16.25
27 Uttarakhand 70197.86 77768.75 93169.10 241135.71 80378.57 63074.57 76726.50 0.22 16719.27 0.74
28 West Bengal 59309.39 74354.67 84054.71 217718.76 72572.92 70880.22 84532.15 2.24 189582.38 8.37
Total 27.15 2265685.48 100.00
441
Total 400000 2000000 304294 339807 389969 417723 214685 1666477 200.4 100.00
Chapter 10: Annex
442
Grants to Urban Local Bodies (as on 06 November 2009)
Bihar 2840 14200 1420 2840 2840 1420 4260 12780 9.0 4.68
Chhattisgarh 1760 8800 745 1015 880 880 3520 7040 8.0 4.16
Goa 240 1200 0 240 0 480 0 720 6.0 3.12
Gujarat 8280 41400 8280 4140 8280 12420 4140 37260 9.0 4.68
Haryana 1820 9100 1820 1820 1820 910 1820 8190 9.0 4.68
Himachal Pradesh 160 800 160 160 160 160 0 640 8.0 4.16
Jammu & Kashmir 760 3800 380 760 0 0 0 1140 3.0 1.56
Jharkhand 1960 9800 0 0 0 1444 0 1444 1.5 0.77
Karnataka 6460 32300 3230 9690 3230 9690 0 25840 8.0 4.16
Kerala 2980 14900 2980 2980 2980 1490 0 10430 7.0 3.64
Madhya Pradesh 7220 36100 7220 7220 3610 10830 0 28880 8.0 4.16
Maharashtra 15820 79100 0 23730 7910 7910 15820 55370 7.0 3.64
Manipur 180 900 90 180 90 90 180 630 7.0 3.64
Meghalaya 160 800 0 240 0 400 0 640 8.0 4.16
Mizoram 200 1000 100 300 0 400 0 800 8.0 4.16
Nagaland 120 600 60 120 60 240 60 540 9.0 4.68
Orissa 2080 10400 2080 1040 0 5200 0 8320 8.0 4.16
Punjab 3420 17100 1710 3420 3420 5130 1710 15390 9.0 4.68
Rajasthan 4400 22000 4400 2200 2200 8800 2200 19800 9.0 4.68
Sikkim 20 100 0 0 0 0 0 0 0.0 0.0
Tamil Nadu 11440 57200 11440 11440 5720 17160 5720 51480 9.0 4.68
Tripura 160 800 0 80 0 0 240 320 4.0 2.08
Uttar Pradesh 10340 51700 5170 10340 15510 10340 0 41360 8.0 4.16
Uttarakhand 680 3400 340 680 0 0 0 1020 3.0 1.56
West Bengal 7860 39300 3930 7860 7860 11790 3930 35370 9.0 4.68
Total 100000 500000 59845 99975 71470 122144 49020 402454 192.5 100.0
Source Basic Data: Ministry of Finance, Government of India
Chapter 10: Annex
Annex 10.12
(Para 10.159)
443
Thirteenth Finance Commission
Annex 10.13
(Para 10.159)
State-wise Allocation to ULBs
444
Chapter 10: Annex
Annex 10.14
(Para 10.159)
State-wise Composite Percentage Share
445
Annex 10.15a
(Para 10.159)
State-wise Composite Share - General Basic Grant
446
Sl. States Percentage (Rs. crore)
No. PRI ULB Total 2010-11 2011-12 2012-13 2013-14 2014-15 Total
1 Andhra Pradesh 6.066 2.227 8.293 665.3 771.5 901.7 1068.4 1265.0 4671.9
2 Arunachal Pradesh 0.318 0.037 0.355 28.5 33.0 38.6 45.7 54.1 199.9
3 Assam 1.831 0.294 2.125 170.5 197.7 231.1 273.8 324.1 1197.2
4 Bihar 5.750 0.844 6.595 529.0 613.5 717.1 849.6 1005.9 3715.2
5 Chhattisgarh 1.939 0.484 2.423 194.4 225.4 263.5 312.2 369.6 1365.2
6 Goa 0.105 0.095 0.200 16.0 18.6 21.7 25.7 30.4 112.4
Thirteenth Finance Commission
7 Gujarat 2.708 1.511 4.219 338.4 392.5 458.7 543.5 643.5 2376.7
8 Haryana 1.261 0.504 1.766 141.6 164.3 192.0 227.5 269.3 994.7
9 Himachal Pradesh 0.646 0.095 0.742 59.5 69.0 80.7 95.6 113.2 417.9
10 Jammu & Kashmir 1.066 0.237 1.303 104.5 121.2 141.7 167.9 198.7 734.0
11 Jharkhand 1.760 0.494 2.254 180.9 209.7 245.1 290.4 343.9 1270.0
12 Karnataka 5.228 2.312 7.540 604.9 701.5 819.9 971.4 1150.1 4247.7
13 Kerala 2.263 0.843 3.106 249.2 289.0 337.7 400.1 473.8 1749.7
14 Madhya Pradesh 4.775 1.734 6.509 522.2 605.5 707.7 838.5 992.8 3666.8
15 Maharashtra 6.382 3.688 10.070 807.9 936.9 1095.0 1297.3 1536.1 5673.1
16 Manipur 0.254 0.095 0.349 28.0 32.5 38.0 45.0 53.3 196.7
17 Meghalaya 0.363 0.093 0.456 36.6 42.5 49.6 58.8 69.6 257.2
18 Mizoram 0.234 0.109 0.343 27.5 31.9 37.3 44.2 52.3 193.3
19 Nagaland 0.354 0.089 0.443 35.6 41.2 48.2 57.1 67.6 249.7
20 Orissa 3.007 0.576 3.583 287.5 333.4 389.6 461.6 546.6 2018.6
21 Punjab 1.306 0.730 2.035 163.3 189.4 221.3 262.2 310.5 1146.7
22 Rajasthan 4.571 1.386 5.957 477.9 554.2 647.8 767.5 908.7 3356.1
23 Sikkim 0.214 0.003 0.217 17.4 20.2 23.6 28.0 33.1 122.4
24 Tamil Nadu 3.579 2.753 6.332 508.0 589.1 688.5 815.8 965.9 3567.3
25 Tripura 0.340 0.065 0.405 32.5 37.7 44.1 52.2 61.8 228.2
26 Uttar Pradesh 11.360 3.427 14.787 1186.2 1375.7 1607.8 1905.0 2255.5 8330.2
27 Uttarakhand 0.686 0.221 0.907 72.7 84.4 98.6 116.8 138.3 510.8
28 West Bengal 4.810 1.875 6.685 536.3 621.9 726.9 861.2 1019.7 3765.9
Total 73.177 26.823 100.000 8022.3 9303.2 10873.4 12883.0 15253.5 56335.4
447
Total 73.177 26.823 100.000 0.0 3180.9 7461.8 8801.6 10381.9 29826.1
Chapter 10: Annex
Annex 10.15c
(Para 10.159)
448
Chapter 10: Annex
Annex 10.15d
(Para 10.159)
State-wise Composite Share - Special Areas Performance Grant and Aggregate Grant
(Rs. crore)
Sl. States 2010-11 2011-12 2012-13 2013-14 2014-15 Total Aggregate Grant to Local Bodies
No.
PRI Total ULB Total Special
Areas
Grant
1 Andhra Pradesh 0.0 2.9 5.9 5.9 5.9 20.5 5226.2 1919.2 49.8
2 Arunachal Pradesh 0.0 0.0 0.0 0.0 0.0 0.0 274.1 31.6 0.0
3 Assam 0.0 3.6 7.3 7.3 7.3 25.5 1577.4 253.6 61.8
4 Bihar 0.0 0.0 0.0 0.0 0.0 0.0 4954.5 727.6 0.0
5 Chhattisgarh 0.0 10.5 21.1 21.1 21.1 73.8 1670.7 417.2 179.3
6 Goa 0.0 0.0 0.0 0.0 0.0 0.0 90.1 81.9 0.0
7 Gujarat 0.0 7.2 14.4 14.4 14.4 50.5 2332.8 1302.2 122.6
8 Haryana 0.0 0.0 0.0 0.0 0.0 0.0 1086.7 434.6 0.0
9 Himachal Pradesh 0.0 0.1 0.3 0.3 0.3 1.0 556.9 82.3 2.3
10 Jammu & Kashmir 0.0 0.0 0.0 0.0 0.0 0.0 918.3 204.3 0.0
11 Jharkhand 0.0 17.5 35.0 35.0 35.0 122.5 1516.6 425.8 297.4
12 Karnataka 0.0 0.0 0.0 0.0 0.0 0.0 4504.8 1991.9 0.0
13 Kerala 0.0 0.0 0.0 0.0 0.0 0.0 1950.2 725.9 0.0
14 Madhya Pradesh 0.0 13.3 26.5 26.5 26.5 92.8 4113.8 1494.3 225.3
15 Maharashtra 0.0 3.9 7.9 7.9 7.9 27.6 5498.6 3178.1 67.0
16 Manipur 0.0 0.9 1.8 1.8 1.8 6.2 219.2 81.7 15.0
17 Meghalaya 0.0 2.3 4.6 4.6 4.6 16.1 313.0 80.3 39.1
18 Mizoram 0.0 0.9 1.8 1.8 1.8 6.2 201.3 94.3 15.1
19 Nagaland 0.0 2.0 4.0 4.0 4.0 13.9 305.4 76.5 33.8
20 Orissa 0.0 10.8 21.6 21.6 21.6 75.6 2591.2 496.1 183.6
21 Punjab 0.0 0.0 0.0 0.0 0.0 0.0 1125.1 628.7 0.0
22 Rajasthan 0.0 1.8 3.6 3.6 3.6 12.7 3938.7 1194.3 30.9
23 Sikkim 0.0 0.0 0.0 0.0 0.0 0.0 184.5 2.7 0.0
24 Tamil Nadu 0.0 0.0 0.0 0.0 0.0 0.0 3083.9 2372.0 0.0
25 Tripura 0.0 1.2 2.4 2.4 2.4 8.5 293.4 55.7 20.7
26 Uttar Pradesh 0.0 0.0 0.0 0.0 0.0 0.0 9787.7 2952.8 0.0
27 Uttarakhand 0.0 0.0 0.0 0.0 0.0 0.0 591.0 190.2 0.0
28 West Bengal 0.0 0.8 1.6 1.6 1.6 5.5 4144.3 1615.4 13.4
Total 0.0 79.8 159.7 159.7 159.7 558.8 63050.5 23111.0 1357.1
Source: Annex 10.6 and Table 10.4
449
Thirteenth Finance Commission
Annex 11.1
(Para 11.92)
1 2 3 4 5 6 7
1 Andhra Pradesh 508.84 534.28 560.99 589.04 618.49 2811.64
2 Arunachal Pradesh 36.74 38.58 40.51 42.54 44.67 203.04
3 Assam 263.77 276.96 290.81 305.35 320.62 1457.51
4 Bihar 334.49 351.21 368.77 387.21 406.57 1848.25
5 Chhattisgarh 151.32 158.89 166.83 175.17 183.93 836.14
6 Goa 2.96 3.11 3.27 3.43 3.60 16.37
7 Gujarat 502.12 527.23 553.59 581.27 610.33 2774.54
8 Haryana 192.90 202.55 212.68 223.31 234.48 1065.92
9 Himachal Pradesh 130.76 137.30 144.17 151.38 158.95 722.56
10 Jammu & Kashmir 172.46 181.08 190.13 199.64 209.62 952.93
11 Jharkhand 259.45 272.42 286.04 300.34 315.36 1433.61
12 Karnataka 160.96 169.01 177.46 186.33 195.65 889.41
13 Kerala 131.08 137.63 144.51 151.74 159.33 724.29
14 Madhya Pradesh 392.75 412.39 433.01 454.66 477.39 2170.20
15 Maharashtra 442.69 464.82 488.06 512.46 538.08 2446.11
16 Manipur 7.22 7.58 7.96 8.36 8.78 39.90
17 Meghalaya 14.65 15.38 16.15 16.96 17.81 80.95
18 Mizoram 8.55 8.98 9.43 9.90 10.40 47.26
19 Nagaland 4.97 5.22 5.48 5.75 6.04 27.46
20 Orissa 391.58 411.16 431.72 453.31 475.98 2163.75
21 Punjab 222.92 234.07 245.77 258.06 270.96 1231.78
22 Rajasthan 600.66 630.69 662.22 695.33 730.10 3319.00
23 Sikkim 22.75 23.89 25.08 26.33 27.65 125.70
24 Tamil Nadu 293.52 308.20 323.61 339.79 356.78 1621.90
25 Tripura 19.31 20.28 21.29 22.35 23.47 106.70
26 Uttar Pradesh 385.39 404.66 424.89 446.13 468.44 2129.51
27 Uttarakhand 117.66 123.54 129.72 136.21 143.02 650.15
28 West Bengal 304.83 320.07 336.07 352.87 370.51 1684.35
Total 6077.30 6381.18 6700.22 7035.22 7387.01 33580.93
450
Annex 11.2
(Para 11.93)
451
28 West Bengal 228.62 240.05 252.05 264.65 277.88 1263.25 76.21 80.02 84.02 88.22 92.63 421.10
Chapter 11: Annex
Total 4677.82 4911.70 5157.29 5415.17 5685.95 25847.93 1399.48 1469.48 1542.93 1620.05 1701.06 7733.00
Thirteenth Finance Commission
Annex 11.3
(Para 11.102)
452
Chapter 12: Annex
Annex 12.1
(Para 12.23)
(Rs. crore)
453
Thirteenth Finance Commission
Annex 12.2
(Para 12.46)
(Rs. crore)
454
Chapter 12: Annex
Annex 12.3
(Para 12.47)
455
Annex 12.4
(Para 12.54)
Sample Calculations for Assumed Achievement during Award Period
456
S. States Total Total Un- Category Assumed Capacity State’s Grants Capacity State’s Grants Total Incen- Caps Total
No. Potential Achieve- achieved- of State Achieve- Addition Share Rs. cr. Added Share Rs. cr. Grant tive /MW Grant
(MW) ment in Capacity ment as Ratio (I) (I) as % of (II) (II) Rs. cr. per (Rs. Rs. cr.
Installed (MW) (MW) of Un- Total Before MW 1.25 After
Capacity achieved Capacity Cap (Rs. cr. for Cap
(as on 31 Capacity Addition (I+II) cr.) GCS; (I+II)
March (MW) (before Rs. 1.5
2009) cap) cr. for
(MW) SCS)
Yi Ai Yi-Ai Xi CAi
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Thirteenth Finance Commission
1 Andhra Pradesh 9174 638 8536 Gen 500 0.059 1.78 22.22 8.33 8.33 312.29 334.51 0.669 0.669 334.51
2 Arunachal Pradesh 1243 61 1182 Spl 150 0.127 3.85 48.15 2.50 2.50 93.69 141.84 0.946 0.946 141.84
3 Assam 120 27 93 Spl 10 0.108 3.27 40.83 0.17 0.17 6.25 47.08 4.708 1.500 15.00
4 Bihar 149 55 94 Gen 20 0.212 6.43 80.36 0.33 0.33 12.49 92.85 4.643 1.250 25.00
5 Chhattisgarh 704 174 530 Gen 100 0.189 5.73 71.59 1.67 1.67 62.46 134.05 1.340 1.250 125.00
6 Goa 5 0 5 Gen 1 0.202 6.13 76.63 0.02 0.02 0.62 77.25 77.253 1.250 1.25
7 Gujarat 10992 1440 9552 Gen 800 0.084 2.54 31.77 13.32 13.32 499.67 531.44 0.664 0.664 531.44
8 Haryana 1341 69 1272 Gen 100 0.079 2.39 29.81 1.67 1.67 62.46 92.27 0.923 0.923 92.27
9 Himachal Pradesh 2019 240 1779 Spl 200 0.112 3.41 42.64 3.33 3.33 124.92 167.56 0.838 0.838 167.56
10 Jammu & Kashmir 1294 112 1182 Spl 125 0.106 3.21 40.11 2.08 2.08 78.07 118.19 0.945 0.945 118.19
11 Jharkhand 170 4 166 Gen 20 0.121 3.66 45.71 0.33 0.33 12.49 58.21 2.910 1.250 25.00
12 Karnataka 9510 2022 7488 Gen 800 0.107 3.24 40.53 13.32 13.32 499.67 540.19 0.675 0.675 540.19
13 Kerala 2349 157 2192 Gen 200 0.091 2.77 34.61 3.33 3.33 124.92 159.52 0.798 0.798 159.52
14 Madhya Pradesh 7076 260 6816 Gen 500 0.073 2.23 27.82 8.33 8.33 312.29 340.12 0.680 0.680 340.12
15 Maharashtra 5916 2205 3711 Gen 500 0.135 4.09 51.10 8.33 8.33 312.29 363.39 0.727 0.727 363.39
16 Manipur 92 5 87 Spl 5 0.058 1.75 21.91 0.08 0.08 3.12 25.04 5.007 1.500 7.50
17 Meghalaya 197 31 166 Spl 20 0.121 3.66 45.71 0.33 0.33 12.49 58.20 2.910 1.500 30.00
18 Mizoram 136 24 112 Spl 10 0.090 2.72 34.01 0.17 0.17 6.25 40.26 4.026 1.500 15.00
19 Nagaland 149 29 120 Spl 10 0.083 2.52 31.52 0.17 0.17 6.25 37.77 3.777 1.500 15.00
20 Orissa 1918 44 1874 Gen 100 0.053 1.62 20.24 1.67 1.67 62.46 82.70 0.827 0.827 82.70
21 Punjab 3415 152 3263 Gen 200 0.061 1.86 23.25 3.33 3.33 124.92 148.17 0.741 0.741 148.17
22 Rajasthan 6428 726 5702 Gen 500 0.088 2.66 33.26 8.33 8.33 312.29 345.55 0.691 0.691 345.55
23 Sikkim 214 47 167 Spl 30 0.180 5.45 68.18 0.50 0.50 18.74 86.92 2.897 1.500 45.00
24 Tamil Nadu 4390 4531 0 Gen 600 0.212 6.43 80.41 9.99 9.99 374.75 455.16 0.759 0.759 455.16
25 Tripura 31 16 15 Spl 3 0.200 6.07 75.86 0.05 0.05 1.87 77.74 25.912 1.500 4.50
26 Uttar Pradesh 2567 398 2169 Gen 200 0.092 2.80 34.97 3.33 3.33 124.92 159.89 0.799 0.799 159.89
27 Uttarakhand 1478 128 1350 Spl 200 0.148 4.50 56.19 3.33 3.33 124.92 181.11 0.906 0.906 181.11
28 West Bengal 1034 100 935 Gen 100 0.107 3.25 40.59 1.67 1.67 62.46 103.05 1.030 1.030 103.05
Total 74111 13695 60558 6004 3.295 100.00 1,250.00 100.00 100.00 3,750.00 5,000.00 0.833 4,572.90
Note: Assumptions regarding Xi’s are purely for illustrative purposes.
Chapter 12: Annex
Annex 12.5
(Para 12.57)
(Rs. crore)
Sl. State 2011-12 2012-13 2013-14 2014-15 Total
No. (2010-15)
457
Thirteenth Finance Commission
Annex 12.6
(Para 12.58 (ii))
Total Projected NPRE, Normal NPRE (under Major Heads 2700, 2701 and 2702),
Recovery Rate for Irrigation and Grants-in-Aid for Water Sector
(Rs. crore)
Sl. State Items 2010-11 2011-12 2012-13 2013-14 2014-15 Total
No. (2010-15)
1 Andhra Pradesh Normal Expenditure 613.78 644.47 676.70 710.53 746.06 3391.54
Grant 0.00 71.00 71.00 71.00 71.00 284.00
Total NPRE 613.78 715.47 747.70 781.53 817.06 3675.54
Required Recovery Rate (%) -- 27.00 32.00 37.00 42.00
2 Arunachal Normal Expenditure 29.53 31.00 32.55 34.18 35.89 163.15
Pradesh
Grant 0.00 2.00 2.00 2.00 2.00 8.00
Total NPRE 29.53 33.00 34.55 36.18 37.89 171.15
Required Recovery Rate (%) -- 3.00 6.00 9.00 12.00
3 Assam Normal Expenditure 411.17 431.73 453.31 475.98 499.78 2271.97
Grant 0.00 22.00 22.00 22.00 22.00 88.00
Total NPRE 411.17 453.73 475.31 497.98 521.78 2359.97
Required Recovery Rate (%) -- 3.20 6.20 9.20 12.20
4 Bihar Normal Expenditure 854.48 897.20 942.06 989.17 1038.63 4721.54
Grant 0.00 76.00 76.00 76.00 76.00 304.00
Total NPRE 854.48 973.20 1018.06 1065.17 1114.63 5025.54
Required Recovery Rate (%) -- 20.00 25.00 30.00 35.00
5 Chhattisgarh Normal Expenditure 225.00 236.25 248.06 260.47 273.49 1243.27
Grant 0.00 22.00 22.00 22.00 22.00 88.00
Total NPRE 225.00 258.25 270.06 282.47 295.49 1331.27
Required Recovery Rate (%) -- 148.00 148.00 148.00 148.00
6 Goa Normal Expenditure 36.06 37.86 39.75 41.74 43.83 199.24
Grant 0.00 2.00 2.00 2.00 2.00 8.00
Total NPRE 36.06 39.86 41.75 43.74 45.83 207.24
Required Recovery Rate (%) -- 32.00 37.00 42.00 47.00
7 Gujarat Normal Expenditure 446.53 468.85 492.29 516.91 542.75 2467.33
Grant 0.00 59.00 59.00 59.00 59.00 236.00
Total NPRE 446.53 527.85 551.29 575.91 601.75 2703.33
Required Recovery Rate (%) -- 139.00 139.00 139.00 139.00
8 Haryana Normal Expenditure 693.48 728.15 764.56 802.79 842.92 3831.90
Grant 0.00 53.00 53.00 53.00 53.00 212.00
Total NPRE 693.48 781.15 817.56 855.79 895.92 4043.90
Required Recovery Rate (%) -- 24.00 29.00 34.00 39.00
9 Himachal Normal Expenditure 193.16 202.82 212.96 223.60 234.78 1067.32
Pradesh
Grant 0.00 16.00 16.00 16.00 16.00 64.00
Total NPRE 193.16 218.82 228.96 239.60 250.78 1131.32
Required Recovery Rate (%) -- 3.60 6.60 9.60 12.60
458
Chapter 12: Annex
10 Jammu & Normal Expenditure 250.56 263.09 276.24 290.06 304.56 1384.51
Kashmir
Grant 0.00 22.00 22.00 22.00 22.00 88.00
Total NPRE 250.56 285.09 298.24 312.06 326.56 1472.51
Required Recovery Rate (%) -- 4.80 7.80 10.80 13.80
11 Jharkhand Normal Expenditure 330.29 346.80 364.14 382.35 401.47 1825.05
Grant 0.00 27.00 27.00 27.00 27.00 108.00
Total NPRE 330.29 373.80 391.14 409.35 428.47 1933.05
Required Recovery Rate (%) -- 20.00 25.00 30.00 35.00
12 Karnataka Normal Expenditure 358.43 376.35 395.17 414.93 435.68 1980.56
Grant 0.00 32.00 32.00 32.00 32.00 128.00
Total NPRE 358.43 408.35 427.17 446.93 467.68 2108.56
Required Recovery Rate (%) -- 24.00 29.00 34.00 39.00
13 Kerala Normal Expenditure 297.80 312.69 328.32 344.74 361.98 1645.53
Grant 0.00 44.00 44.00 44.00 44.00 176.00
Total NPRE 297.80 356.69 372.32 388.74 405.98 1821.53
Required Recovery Rate (%) -- 20.00 25.00 30.00 35.00
14 Madhya PradeshNormal Expenditure 391.97 411.56 432.14 453.75 476.44 2165.86
Grant 0.00 37.00 37.00 37.00 37.00 148.00
Total NPRE 391.97 448.56 469.14 490.75 513.44 2313.86
Required Recovery Rate (%) -- 24.00 29.00 34.00 39.00
15 Maharashtra Normal Expenditure 963.09 1011.25 1061.81 1114.90 1170.64 5321.69
Grant 0.00 92.00 92.00 92.00 92.00 368.00
Total NPRE 963.09 1103.25 1153.81 1206.90 1262.64 5689.69
Required Recovery Rate (%) -- 93.00 93.00 93.00 93.00
16 Manipur Normal Expenditure 52.42 55.04 57.79 60.68 63.71 289.64
Grant 0.00 2.00 2.00 2.00 2.00 8.00
Total NPRE 52.42 57.04 59.79 62.68 65.71 297.64
Required Recovery Rate (%) -- 24.20 27.20 30.20 33.20
17 Meghalaya Normal Expenditure 14.27 14.98 15.73 16.52 17.34 78.84
Grant 0.00 1.00 1.00 1.00 1.00 4.00
Total NPRE 14.27 15.98 16.73 17.52 18.34 82.84
Required Recovery Rate (%) -- 3.40 6.40 9.40 12.40
18 Mizoram Normal Expenditure 1.95 2.05 2.15 2.26 2.37 10.78
Grant 0.00 1.00 1.00 1.00 1.00 4.00
Total NPRE 1.95 3.05 3.15 3.26 3.37 14.78
Required Recovery Rate (%) -- 3.60 6.60 9.60 12.60
19 Nagaland Normal Expenditure 11.07 11.63 12.21 12.82 13.46 61.19
Grant 0.00 2.00 2.00 2.00 2.00 8.00
Total NPRE 11.07 13.63 14.21 14.82 15.46 69.19
Required Recovery Rate (%) -- 3.10 6.10 9.10 12.10
20 Orissa Normal Expenditure 367.31 385.68 404.96 425.21 446.47 2029.63
Grant 0.00 46.00 46.00 46.00 46.00 184.00
Total NPRE 367.31 431.68 450.96 471.21 492.47 2213.63
Required Recovery Rate (%) -- 26.00 31.00 36.00 41.00
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Chapter 12: Annex
Annex 12.7
(Para 12.58 (iii))
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Thirteenth Finance Commission
Annex 12.8
(Para 12.58 (iii))
1. These grants should be spent only on non-salary maintenance items for public MMI and MI irrigation schemes.
2. These grants should be budgeted and spent for meeting the non-plan revenue expenditure only under the heads
2700, 2701 and 2702.
3. Recovery rate for irrigation has been taken as the ratio of NPRR under major heads 700, 701 and 702 to NPRE
under major head 2700, 2701 and 2702. The states should fulfil the following criteria in respect of recovery rate
for irrigation:
a) Special category states should step up recovery rate for irrigation by at least 3 percentage points in 2011-12
over 2009-10 (BE) and then by 3 percentage points in every successive year during the forecast period.
b) General category states should meet the following conditions:
Sl. Recovery Rate of States Required Recovery Rate in Step-up in every Successive Year
No. (2009-10 BE) 2011-12 up to 2014-15
1 0% to 15% At least 20% By 5 percentage points
2 Above 15% but less than 75% At least all-states average or their respective By 5 percentage points
recovery rates in 2009-10 (BE) whichever is higher.
3 75% and above At least at 2009-10 (BE) level of the respective Should maintain at least 2011-12 level
states. during the remaining forecast period.
4. The grants may be allocated in two equal instalments in a financial year subject to the following conditions for the
total of NPRE under MH 2700, 2701 and 2702 and required recovery rate as given in Annex-12.6:
Year Items
2011-12 a) 2011-12 (BE) should not be less than the projected ‘total NPRE’ for 2011-12
b) 2010-11 (RE) should not be less than the projected ‘total NPRE’ for 2010-11.
2012-13 a) 2012-13 (BE) should not be less than the projected ‘total NPRE’ for 2012-13
b) 2011-12 (RE) should not be less than the Normal NPRE for 2011-12 plus grants released in 2011-12 and recovery
rate in 2011-12 at required rate or higher.
c) 2010-11 (Actuals) should not be less than the Normal NPRE for 2010-11.
2013-14 a) 2013-14 (BE) should not be less than the projected ‘total NPRE’ for 2013-14
b) 2012-13 (RE) should not be less than the Normal NPRE for 2012-13 plus grants released in 2012-13 and recovery
rate in 2012-13 at required rate or higher.
c) 2011-12 (Actuals) should not be less than the Normal NPRE for 2011-12 plus grants released in 2011-12 and
recovery rate in 2011-12 at required rate or higher.
2014-15 a) 2014-15 (BE) should not be less than the projected ‘total NPRE’ for 2014-15
b) 2013-14 (RE) should not be less than the Normal NPRE for 2013-14 plus grants released in 2013-14 and recovery
rate in 2013-14 at required rate or higher.
c) 2012-13 (Actuals) should not be less than the Normal NPRE for 2012-13 plus grants released in 2012-13 and
recovery rate in 2012-13 at required rate or higher.
5. Grants should be released to only those states in the third year (i.e., 2012-13) which have set up statutory and
independent water resources regulatory authority through appropriate legislation and notified all relevant
provisions by 31 March 2012. However, this condition will not be applicable to north-eastern states except
Assam.
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Chapter 12: Annex
Annex 12.9
(Paras 12.69 and 12.71)
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Annex 12.10
(Para 12.74)
1. The methodology employed for awarding points to states (and determining incentives) is based on the following
premises: (i) initial conditions of all states should be taken due note of; (ii) the improvement (or deterioration)
in their performance over their level in the base year (initial condition) should be duly rewarded (or penalised);
(iii) states that are above the benchmark level should receive a minimum level of points plus additional points for
improved performance, if any, during the period under consideration and (iv) the higher the level of performance
in the base year over the benchmark, improvement over their base level (initial condition) would be that much
harder and should therefore receive ‘elevated weightage’.
2. States would be awarded points based on their incremental performance over the base year in relation to (i) their
initial condition and (ii) the predetermined standard or benchmark. Initial condition is defined as the (output
or outcome or any other indicator) performance level of a state in the base year. Incremental performance is the
difference between the performance level in the year of reckoning (terminal year) and the performance level in
the base year (initial year).
3. If the performance level of a state is below the benchmark level in the base year and terminal years, it would be
awarded points equal to the percentage by which it narrows the gap with the benchmark. Negative performance
would earn zero points.
4. If the performance level of a state is below the benchmark level in the base year but higher than the benchmark
level in the terminal year, it will receive 100 points plus the percentage increase of the performance level in the
terminal year over the benchmark level.
5. States whose achievement is higher than the benchmark level in the base year and in the terminal year would
be awarded 100 points plus the percentage improvement over the base year multiplied by the distance of their
performance level in the terminal year from the benchmark as a percentage of the benchmark level. Negative
performance in relation to the base or initial year but still above the benchmark would earn only 100 points.
Negative performance taking a state below the benchmark (i.e. performance in terminal year less than the
benchmark level) would result in the state getting zero points.
6. The points earned by states on this basis (which can be termed incentive coefficient) would be aggregated, and
each state’s points (incentive coefficient) would be calculated as a percentage of this aggregated total, which
would be the state’s incentive value or incentive percentage. States would then be eligible for incentive grants on
the basis of this incentive percentage.
7. To reiterate, this methodology is predicated on the assumption that the higher (or better) the initial condition in
relation to the benchmark, incremental improved performance would be that much more difficult to achieve and
would, therefore, deserve to be suitably or appropriately rewarded.
8. The rationale is as follows: states that have attained relatively higher levels of performance and are at the high end
of the ‘performance spectrum’ would have comparatively restricted scope for further percentage improvement over
the base year level. The intention is that states that are already at a relatively higher level of performance and are to
some extent disadvantaged by the restricted scope for incremental percentage improvement should not stand to lose.
Hence, their percentage improvement in performance over the base (or initial) year should be suitably weighted to
compensate them for this ‘inherent disadvantage’. It is, therefore, proposed to weight their performance by the distance
of their output/outcome indicator from the median (benchmark) as a percentage of the median (benchmark).
9. For indicators such as Infant Mortality Rate and Poverty Rate there is an inverse relation between the level of the
indicator and performance of the state. i.e. a decrease in the indicator will lead to a incentive while an increase
will be penalised. The formula incorporates this requirement.
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Chapter 12: Annex
is the outcome indicator of the ith State in the base year (y)
is the outcome indicator of the ith State after 5 years i.e in the year (y+5)
M is the median value of the outcome indicators of all States in the base year (y)
Scenario 1
Case 1
Case 2
Case 3
Scenario 2
Case 1
Case 2
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Case 3
Having arrived at the incentive coefficients for all States, the incentive value or incentive percentage is calculated as follows:
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Chapter 12: Annex
Annex 12.11
(Para 12.75)
467
Annex 12.12
(Para 12.89)
468
Allocation of Grants for Improving Delivery of Justice
Sl. State Number of Number Morning/ Lok Adalat Training of Training of Heritage State ADR Court Total
No Sanctioned of Judicial Evening and Legal Judicial Public Court Judicial Centres Managers
Courts Districts Courts Aid Officers Prosecutors Buildings Academy
Rs. crore
1 Andhra Pradesh 926 23 145.18 17.42 14.52 8.71 26.13 15.00 31.25 12.50 270.71
2 Arunachal Pradesh 339 0 53.15 6.38 5.31 3.19 9.57 0.00 0.00 77.60
3 Assam 289 21 45.31 5.44 4.53 2.72 8.16 15.00 28.53 11.41 121.10
4 Bihar 1367 30 214.32 25.72 21.43 12.86 38.58 15.00 40.76 16.30 384.97
Thirteenth Finance Commission
5 Chhattisgarh 348 16 54.56 6.55 5.46 3.27 9.82 15.00 21.74 8.70 125.09
6 Goa 49 2 7.68 0.92 0.77 0.46 1.38 2.72 1.09 15.02
7 Gujarat 1028 26 161.17 19.34 16.12 9.67 29.01 15.00 35.33 14.13 299.76
8 Haryana 393 18 61.61 7.39 6.16 3.70 11.09 24.46 9.78 124.20
9 Himachal Pradesh 126 11 19.75 2.37 1.98 1.19 3.56 15.00 14.95 5.98 64.77
10 Jammu & Kashmir 208 22 32.61 3.91 3.26 1.96 5.87 15.00 29.89 11.96 104.46
11 Jharkhand 527 22 82.62 9.91 8.26 4.96 14.87 15.00 29.89 11.96 177.48
12 Karnataka 872 29 136.71 16.41 13.67 8.20 24.61 15.00 39.40 15.76 269.76
13 Kerala 430 14 67.42 8.09 6.74 4.04 12.13 15.00 19.02 7.61 140.06
14 Madhya Pradesh 1307 49 204.91 24.59 20.49 12.29 36.88 15.00 66.58 26.63 407.38
15 Maharashtra 1898 49 297.57 35.71 29.76 17.85 53.56 15.00 66.58 26.63 542.65
16 Manipur 34 2 5.33 0.64 0.53 0.32 0.96 2.72 1.09 11.59
17 Meghalaya 10 1 1.57 0.19 0.16 0.09 0.28 1.36 0.54 4.19
18 Mizoram 40 2 6.27 0.75 0.63 0.38 1.13 2.72 1.09 12.96
19 Nagaland 27 0 4.23 0.51 0.42 0.25 0.76 0.00 0.00 6.18
20 Orissa 531 30 83.25 9.99 8.32 4.99 14.98 15.00 40.76 16.30 193.61
21 Punjab 346 14 54.25 6.51 5.42 3.25 9.76 15.00 19.02 7.61 120.83
22 Rajasthan 825 34 129.34 15.52 12.93 7.76 23.28 15.00 46.20 18.48 268.51
23 Sikkim 13 2 2.04 0.24 0.20 0.12 0.37 15.00 2.72 1.09 21.78
24 Tamil Nadu 788 30 123.54 14.83 12.35 7.41 22.24 15.00 40.76 16.30 252.44
25 Tripura 80 3 12.54 1.51 1.25 0.75 2.26 4.08 1.63 24.02
26 Uttar Pradesh 2174 70 340.84 40.90 34.08 20.45 61.35 15.00 95.11 38.04 645.78
27 Uttarakhand 273 13 42.80 5.14 4.28 2.57 7.70 15.00 17.66 7.07 102.22
28 West Bengal 698 19 109.43 13.13 10.94 6.57 19.70 15.00 25.82 10.33 210.91
All States 15946 552 2500.00 300.00 250.00 150.00 450.00 300.00 750.00 300.00 5000.00
Chapter 12: Annex
Annex 12.13
(Para 12.93)
Concept Note and Guidelines for Setting Up of the Centre for Innovations
in Public Systems (CIPS)
Introduction
The responses to the Finance Commission’s queries on innovation practices received from various State Governments
were analysed.
Some of the innovations or better practices introduced in recent years by some states include:
i) Distribution of one lakh bulletins in different languages on Right to Information to create widespread
awareness among common people, with a particular thrust on creating awareness among the students.
ii) Amendment of the prevention of corruption Act to provide for attachment of the properties of indicted
people resulting in a strong message to bureaucracy.
iii) Involvement of, and licensing to private surveyors to update land records and facilitating speedy issue of
computerised copies of records of ownership to farmers at very low cost.
iv) Establishment of legal aid clinics, facilitating the provision of free legal aid to citizens. Further, establishment
of a dedicated Lok Adalat for redressal of grievances or disputes relating to public utility services.
v) Launch of an initiative to encourage innovations by public officials using available resources in a time-
bound manner.
vi) Development of a new land use policy for checking shifting cultivation.
The review of data received from various states about innovations, attempts for business process of re-engineering and
incentives for innovations also reveals that there is no dearth of ideas being tried in different states for improving the
quality of governance. However, there are a few areas that need systematic attention:
i) There is not enough effort to isolate the conceptual and operational lessons from different experiments and
successful policies across the state.
ii) There is no data base on innovative best practices in different sectors and at different levels in the state.
iii) Cross-fertilisation of ideas is not taking place at a sufficient rate and scale.
iv) Many good ideas attempted once are aborted, and given short public memory, are not recalled very often.
v) Incentives for innovations in public systems are not enough and sufficient visibility is not given to change
agents.
vi) The systems of training and education in various public administration institutions have not incorporated
the lessons of various innovations adequately and systematically.
vii) The need for synergy between public, private and civil society organisations is being realised almost all over
the country, but sufficient mechanisms for achieving this synergy do not exist.
viii) Sufficient attention is not being paid to build leadership that spots innovations, sustains them, and where
necessary, spawns new innovations.
In the light of the above, a Centre for Innovations in Public Systems (CIPS) is proposed to catalyse innovative changes
in both the culture as well as structure of governance in various states. The Centre would address the various gaps
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Thirteenth Finance Commission
identified above and contribute towards sustainable outcomes in meeting rising social aspirations. The Centre would
also provide assistance to the State Governments in developing policies for promoting an innovative culture for
transforming creative ideas into sustainable practices at the local level.
The following sections set out its proposed mission and objectives, functions, its location, governance processes and
other aspects related to its establishment.
The mission of the Centre for Innovations and Good Practices in Public Systems (CIPS) is to help create a climate and
nurture a culture for accelerating and diffusing innovation in public systems.
i) Identify, recognise and promote innovations in public systems in the area of management of people,
process (cost and quality), systems (technology) and services, across various states to improve the well-
being of the common people.
ii) Catalyse and trigger lateral learning for initiating action research projects, macro level changes and
innovations in the policies and practices across states.
iii) Provide a range of learning opportunities and services to various stakeholders for building capacity
through training programmes, conferences, seminars, surveys, publications and development of a national
catalogue/database of innovations in public systems for improving public services.
iv) Facilitate sharing of international experiences and exposure to best practices in governance of public
systems.
Functions of CIPS
i) Scout, scan and track different innovations at the state as well as at the national level that have positively
impacted public service delivery, increased efficiency and led to cost reduction.
ii) Create a public domain inventory of innovations in public systems, government departments for the
purpose of knowledge management and diffusion of innovations.
iii) Facilitate emergence of eco-systems that are hospitable to cost-effective innovative ideas, provide
empowerment and freedom, and encourage risk-taking experiments for promoting innovations.
iv) Act as a platform for sharing and disseminating knowledge of new ventures and best practices in
administration.
v) Help in developing policies for incentives (reward & recognition) to accelerate the process of innovation and
cross-fertilization of ideas for opening up new lines of inquiry for sustainable change and transformation in
public systems.
vi) Design relevant training programmes in partnership with the State Governments for developing an
innovative mindset for creating new solutions on an ongoing basis.
vii) Facilitate pursuit of diagnostic studies to identify possible barriers that block innovation and also factors
that facilitate innovations in public systems.
viii) Facilitate provision of social venture capital/innovation promotion fund and crucial balancing investment
for new ideas and last mile investments in the administration.
ix) Organise annual retreats of top leaders (chief ministers, ministers, principal secretaries, secretaries, etc.)
in a conductive setting for encouraging constructive debate, introspection and reflection for developing
inclusive policy solutions and operational mechanisms. This will also help in building leadership traits that
facilitate learning from below, around and from people at the grassroot level.
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Chapter 12: Annex
x) Honour outstanding innovations in public systems through a scheme of annual awards so as to incentivise
the innovators in public systems/state departments.
xi) Develop a body of knowledge including research based case studies, comparative analyses of innovations
and experience of their diffusion within and across the states using multimedia and multi-language
learning materials for becoming more innovative in the delivery of public services.
The Centre for Innovations in Public Systems (CIPS) will be located at the Administrative Staff College of India (ASCI),
Hyderabad, an autonomous institution, established under the initiative of government and industry in 1956. The
college has a record of promoting good practice and innovations in public administration. ASCI has also been involved
in supporting the Department of Administrative Reforms and the Prime Minister’s Office in recognising innovative
change agents in public systems.
The governance arrangements for CIPS, which will be located in ASCI, would be as under:
ii) Three representatives of the Union Government, viz. the Finance Secretary, Secretary (Personnel), and
Secretary (Administrative Reforms).
v) Four independent experts known for their contribution to the field of innovation, to be nominated by the
Director-General of ASCI.
The Advisory Council may be chaired by the Chief Secretary, Andhra Pradesh State Government, who is also a member
of the Court of Governors of ASCI or a person nominated by the Chairman of ASCI Court of Governors.
i) Comment and make suggestions on the Center’s work programme and monitor its implementation
ii) Review and comment upon the annual budget of the CIPS and receive an audit report
iii) Meet twice a year in Hyderabad, subject to a minimum quorum of 25 per cent of its membership
A Steering Committee will be established to provide space for the representation of the insights of State Governments
in giving shape and driving the work programme of the Centre. The Committee will be headed by the Director-General
of ASCI. The other members of the Steering Committee will be:
i) Two chief secretaries to the government or their nominees as invited by the Chairman of the Court of
Governors of ASCI (or nominated by the Advisory Council) to serve for one year each, on a rotating basis.
iii) Two of the four independent nominees represented on the Advisory Council, as invited by the Director-
General of ASCI.
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The Steering Committee will meet every quarter, with a quorum of one-third of its membership. It will report to the
Advisory Council of CIPS and, through it, to the Court of Governors of ASCI, on its work programme twice a year.
Financing
i) On the basis of Finance Commission grant, a one-time grant of Rs. 20 crore will be vested with ASCI
through the government of Andhra Pradesh during 2010-11.
ii) The funds will be held and managed by ASCI and will be subject to the auditing procedures that apply to
ASCI’s funding and activities.
iii) CIPS can generate further funding from other sources, including State Governments, private sector and
other funding agencies, such as multilateral and bilateral agencies like the United Nations (UN), World
Bank, Asian Development Bank (ADB) and Department for International Development (DfID), subject
to the condition that neither the objectives of the CIPS nor its governance structure will be diluted in any
manner whatsoever.
Operational Issues
The grant provided by the Thirteenth Finance Commission will not be applied. either wholly or partially, for the
purchase of land or for the construction or purchase of buildings. Any moveable assets such as furniture, computers,
books, etc., will become the property of ASCI if the mandate of CIPS concludes at the end of five years.
The audit framework in place for ASCI will be made applicable to CIPS and the accounts of CIPS will be audited
annually. The audit report will be placed annually before the Advisory Council of CIPS, which will, in turn, forward it to
the Court of Governors of ASCI for its approval.
The Centre will work on the principle of a core plus project based staff, with the complement of administrative and
clerical staff kept to the minimum. As the funding is guaranteed for a period of five years, no staff earmarked on a whole
time basis for CIPS will be recruited for a tenure longer than five years.
Unless specified otherwise, the staff rules and regulations governing ASCI, will apply to CIPS.
For any administration, faculty and other services, such as the use of the infrastructure rendered by ASCI, an appropriate
charge, as proposed by the Executive Council of CIPS and approved by the Standing Committee of Governors of ASCI,
will be made on the budget of CIPS.
The Director-General of ASCI will be responsible for the good functioning of CIPS within the framework of ASCI’s
larger governance processes and the specific mandate of CIPS.
On 31 March 2014, the Steering Committee will, in discussion with the Advisory Council and with the approval of
the Court of Governors of ASCI, furnish to the Fourteenth Finance Commission a review of all the work CIPS has
undertaken, including the work undertaken using the grant provided by the Thirteenth Finance Commission.
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Chapter 12: Annex
Annex 12.14
(paras 12.96 and 12.101)
State-wise Grants for District Innovation Fund and for Improving District
and State Statistical Systems
S.No. Name of State No. of Districts Grant for District Grant for
Innovation Fund Improving District
(Rs. crore) and State Statistical
Systems
(Rs. crore)
1 Andhra Pradesh 23 23 23
2 Arunachal Pradesh 16 16 16
3 Assam 27 27 27
4 Bihar 38 38 38
5 Chhattisgarh 18 18 18
6 Goa 2 2 2
7 Gujarat 26 26 26
8 Haryana 21 21 21
9 Himachal Pradesh 12 12 12
10 Jammu and Kashmir 22 22 22
11 Jharkhand 24 24 24
12 Karnataka 29 29 29
13 Kerala 14 14 14
14 Madhya Pradesh 50 50 50
15 Maharashtra 35 35 35
16 Manipur 9 9 9
17 Meghalaya 7 7 7
18 Mizoram 8 8 8
19 Nagaland 11 11 11
20 Orissa 30 30 30
21 Punjab 20 20 20
22 Rajasthan 33 33 33
23 Sikkim 4 4 4
24 Tamil Nadu 31 31 31
25 Tripura 4 4 4
26 Uttar Pradesh 70 70 70
27 Uttarakhand 13 13 13
28 West Bengal 19 19 19
Total 28 States 616 616 616
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Annex 12.15
(Para 12.110)
1. Employee Code
3. Father/Husband Name
4. Gender
5. Date of Birth
6. Date of Appointment
8. Current Post/Designation
a) Basic Pay
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Chapter 12: Annex
Annex 12.16
(Para 12.114)
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Thirteenth Finance Commission
Annex 12.17
(Para 12.114)
476