Tirupati: A four-member team, led by former RBI governor Dr Y. Venugopal Reddy, was appointed as the Finance Commission which recommends division of shareable central taxes between the Central government and states.
Highlighting the disparity between Centre and state finances, AP Chief Minister N. Chandrababu Naidu pitched for a higher share of 50 per cent for states from shareable central taxes. Currently, all states together get 32 per cent of central taxes from the divisible pool.
This share would get further distributed among individual states on the basis of equity or population among other criteria such as area, fiscal discipline, and tax effort. A state with higher population will have a lower per capita, and hence will get more funds to make them develop at par with other developed states.
Mr Naidu, however, pleaded with the Commission to reduce the weight-age of equity as a basis for distribution as it “penalises progressive states which are working towards controlling the population growth and results in a perverse incentive of rewarding poor performance.”
The equity formula led to a reduction of AP’s share in shareable taxes from 7.91 per cent in the 10th Finance Commission to 6.94 per cent in 13th Finance Commission.
He observed that the central government has been increasing its financial resources beyond the shareable taxes by levying cess and surcharge and revenue from PSUs and spectrum sale and requested the commission to make an enabling provision to share such revenue with states.
Making his case for additional funds from the central taxes, the Chief Minister said that Section 46 of the AP Reorganistion Act explicitly asks the Finance Commission to make separate award for the successor states. “Keeping in view of this, AP may be treated as a distinct from states and may be granted Rs 1,00,213 crore during the next five years to enable the state to build a modern capital city,” he explained. He wants an additional Rs 40,000 crore for the development of backward regions as Rayalaseema and northern coastal Andhra.
Mr Naidu also sought the commission’s waiver for Andhra Pradesh to have higher deficit budgets to allow his government to rebuild his state. “Considering our special requirements and the need to raise funds to relocate facilities in our new capital city, we may be allowed to have a fiscal deficit of 7 per cent for the next five years.”
The Fiscal Responsibility and Budget Management (FRBM) Act has penal provisions such as disallowance of state specific grants, etc, if a state overshoots the cap on fiscal deficit.
The Chief Minister also criticised the central government for spending directly in state subjects. “Instead of allocating a higher share in taxes, we are noticing an increasing encroachment of centrally sponsored schemes.”
In order to cash in on gas potential of the Krishna Godavari basin, Mr Naidu sought a share in revenue from offshore drilling. “The states are being denied access to resources on offshore drilling though such activities cause severe strain on the states’ infrastructure,” he said.
