Abstract

The XVFC, appointed on 27th November 2017 under the chairmanship of N.K. Singh, has recommended maintaining the vertical devolution at 41%. The recommendations of the XVFC will confer more fiscal autonomy to union as well as states on the revenue and the expenditure fronts, as the total transfers (devolution and grants) add up to around 34% of estimated Gross Revenue Receipts to the Union. Besides the several categories under which it happens, what makes fund transfer far more complex is that certain funds lie between being entirely tied and entirely untied. However, the future contours of the vertical devolution of resources between the Union and the States is to share gross revenue receipts similarly in about equal ratio between the Union and States, while assuming no further decline in the divisible pool as a proportion of gross revenue receipts. This balance has been achieved through 41% of the divisible pool being devolved to the twenty-eight States and the balance devolution taking place through various forms of Finance Commission and non-Finance Commission transfer mechanisms. In absolute terms, for the period 2021-26, the states will get a total of Rs.42.2 lakh crore in tax devolution (Including total grants of Rs 10.33 lakh crore). The cumulative transfers to States are estimated to remain at around 50.9% of the divisible pool during same period. The XVFC outlined a very comprehensive assessment of the revenue and expenditure of States and the Union. An increase in the overall share will give more freedom to States and Local Governments. With many taxes subsumed under it, GST accounts for 35% of the gross tax revenue of the Union and 44% of own tax revenue of the States. XVFC recommended non-financial recommendations for promoting cooperative fiscal federalism.

Keywords: Finance Commission, Fiscal Autonomy, Federalism, Devolution