SPECIAL PACKAGE FOR
STATES - POLITY
News: In
the run-up to the Union Budget, the Chief Ministers of Bihar and Andhra
Pradesh have demanded special financial packages for their
respective States.
Whats in the news?
Financial Grants to States
- The
central government provides financial assistance to states through various
grants such as:
- Finance
Commission Grants: These are awarded
based on the recommendations of the Finance Commission of India, which
allocates a share of central taxes to states.
- Plan
Grants: These are funds allocated under
various central government plans for specific sectors like health,
education, infrastructure, etc.
- Discretionary
Grants: These grants are provided at the
discretion of the central government for specific projects or
emergencies.
Constitutional Provisions Related to
Centre State Financial Relations:
- Articles
202 to 206 deal with the financial
administration of states, including provisions related to their budget,
expenditure, borrowing, and taxation powers.
- Articles
268 to 272 outline the distribution of
revenues between the Union and the states.
- Article
280 provides for the establishment of a Finance
Commission every five years (or as specified by the President).
- Article
282 allows the Union government to provide
financial assistance to states for any public purpose.
What is the Special Category Status?
- It was introduced in
1969 when the fifth Finance Commission sought to provide certain
disadvantaged states with preferential treatment.
- It was named Gadgil
Formula after the name of then Deputy Chairman of the Planning Commission,
Dr Gadgil Mukherjee.Initially, three states; Assam, Nagaland and Jammu
& Kashmir were granted special status. From 1974-1979 Himachal
Pradesh, Manipur, Meghalaya, Sikkim and Tripura were added under the
category.
In 1990, Arunachal Pradesh and Mizoram and in 2001
Uttarakhand were given special category status.On the recommendations of the
14th Finance Commission Gadgil formula-based grants were discontinued.
Current Share of the States
- The
government accepted the recommendations of the 14th Finance
Commission and from 2015, it hiked the tax devolution to states
from Centre, to 42 percent from 32 percent earlier, and
also added a new provision of revenue deficit grants to
states facing any resource gap.
- States’
share is decided by a formula meant to incentivize
demographic performance and each states effort to mobilize its own tax
revenue.
- The
formula also takes into account geographic area, forest cover and the
state’s per capita income.
- The 15th
finance commission, under the chairmanship of N K Singh has
revised tax devolution and brought it down to 41 percent from 42
percent.
- So
the current tax devolution to states stands at 41 percent till
2026.
- The 90:10
rule is still applicable to the northeastern and hill
states, although there is no special status category.
- All
the other states receive Central funding in a 60:40 ratio, 60
percent being the Central government’s contribution and 40 percent
states
- Source: https://www.thehindu.com/opinion/op-ed/should-states-get-special-packages-outside-finance-commission-allocations/article68392645.ece