Federal Character of Public Finance in India

1. Current Public Finance Scenario
&
Fiscal Federalism
Presenter: Alok Kumar, IAS, Adviser, Financial Resources, NITI Aayog
Date: 21st July, 2017
1

2. Federal Character of Public Finance in India
Taxation Powers
of State
Subjects of
Expenditure
assigned to States
Revenue raising capacity of States is less than the subjects of expenditure assigned to them under Constitution
0
500000
1000000
1500000
2000000
2500000
3000000
2013-14 2014-15 2015-16 2016-17 RE
States' Receipt & Expenditure (Rs. crore)
Total Expenditure State Total Revenue- State
Gap between
revenue &
expenditure is
increasing
As a result, Constitution provides for Central Transfers to States
2

3. Central Transfers to States
Central
Transfers to
States
Tied Funds
Centrally
Sponsored
Schemes
(like SSA, NHM,
MGNREGA)
Special
Assistance,
Block Grants*
Untied Funds
(Finance
Commission)
Tax Devolution Grants-in-Aid
* Block Grants includes Tribal Sub Plan, Grants under Roads & Bridges, Assistance Under NEC, NLCPR for North East & Sikkim etc. 3

4. Redefining Fiscal Federalism to Ensure Better Utilization
of Funds
14th Finance Commission
(2015-20) recommendation
to increase States’ share of
taxes
Rationalisation of Centrally
Sponsored Schemes
Scraping of Planning
Commission & discretionary
grants ;
Doing away with Plan & Non
Plan distinction in Budget
2015 - 2017 : A CRUCIAL PERIOD FOR FINANCIAL TRANSFORMATION
4

5. 14th Finance Commission (2015-20) Increased Fiscal Space &
Financial Autonomy
51%
62%
63%
10%
12%
11%
39%
26%
26%
0
2,00,000
4,00,000
6,00,000
8,00,000
10,00,000
12,00,000
2014-15 Actual 2015-16 Actual 2016-17 RE
Rs.crore
Devolution Grants-in-Aid CASP
Untiedfunds
21%
17%
* CASP: Central Assistance to State Plan which comprise Centrally Sponsored Schemes & Block Grants
Untiedfunds
Untiedfunds
5

6. Composition of Revenue Receipts reflect Increased
dependency on Centre
OTR
46%
NTR
8%
GIA
18%
Central tax
28%
2016-17 RE 2014-15
Major
States
0%
OTR
52%
NTR
10%
GIA
17%
Central tax
21%
2014-15
VS.
Own Tax Contribution in total receipts is declining from 52% in 2014-15 to 46% in 2016-17.
States like Bihar, West Bengal have lowest OTR-GSDP ratio.
States dependence on Centre is increasing, post FFC.
GST is expected to improve tax compliance & administration.
Nonetheless, positive tax efforts are required on part of States.
6

7. Rationalisation of Centrally Sponsored Schemes
(Recommended by Sub Group of Chief Ministers)
Changed Funding Pattern
For Core Schemes, large states
60:40
Number reduced from
66 to 28
Increased Flexibility in Schemes
and Institutional mechanism
from earlier 10% to 25%
Transparent criteria for allocation
under each scheme be evolved by
each Min./Deptt. with concerned
advisor of NITI Aayog as nodal
officer
Third-party evaluation by
NITI Aayog
To improve efficiency of expenditure, provide more flexibility to States & improve outcomes
7

8. Replacing Planning Commission with NITI Aayog
Another Step towards reforming the transfer system
Special Assistance to fulfill spillover committed liabilities for which budget
provision is not made after implementation of 14th FC
Reducing Share of Discretionary Transfers
Union Budget has been providing for Special Assistance each year from 2015-16, while the
amount of this assistance is gradually reducing.
Rs.12,450 in 2015-16 (Demand No 37), Rs.11,000 in 2016-17 (Demand 32) & Rs. 11,000 (Demand No 40) in 2017-18
Scraped discretionary grants to States like Additional Central Assistance, Special Plan
Assistance, Special Central Assistance
8

9. Move towards Outcome Oriented Transfers
Another important Expenditure reform by transitioning from mere outlays to result
oriented outputs and outcomes
2017-18 onwards, output and outcomes of schemes of 68 Ministries/Depart. are
available along with the financial outlays as a part of the Budget documents
Each Ministry/Department to prepare an output/outcome statement which are
measurable for each scheme/project allocation for a period of 3 years
NITI Aayog & Public Finance (States) of MoF are key coordinators in finalizing the
output outcome framework
9

10. Additional Burden on State Finances
Ujjawal Discom
Assurance Yojana
(UDAY)
7th Pay
Commission
Farm Loan
Waiver
Upward pressures on Fiscal Deficit of States
Fiscal Deficit of States on including UDAY rises from 2.7% to 3.9% ( 1.2% ) for 2016-17
In FY 18, UDAY along with 7th PC & farm loan waiver States fiscal deficit will further deteriorate 10

11. Thank You
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