Did the Fourteenth Finance Commission recommendations go against ‘Team India’?

M Rajshekhar’s story from Mizoram certainly suggests it did.

With the centre accepting the commission’s recommendations on how to overhaul funding to state governments, all this has changed. In the new system, states’ share of central taxes has risen from 32 per cent to 42 per cent. At the same time, the centre has cut back on the development programmes it funds in states. The rationale that has been offered is that states would now get more funds they can deploy any way they like. In theory, this means states can undertake more locally relevant developmental work. But in practice, while some states gain from the new system, others lose. Mizoram is one of the losers. In 2014-’15, the state got about Rs 5,300 crore from the centre. This year, after increases in both its share of central taxes and deficit grant funding, it will get Rs 4,200 crore from these two sources. However, the centre’s decision to cut back on development funding – the third source – might nullify these gains.

Following the FFC recommendations, as well as with an aim to reduce the number of centrally sponsored schemes, the central government has either reduced its contribution or backed out completely.

A letter from the state finance department dated 7 May lists 22 programmes where the funding pattern will change and 8 projects that the centre will no longer fund. Take the Rashtriya Kisan Vikas Yojana, one of the biggest agriculture programmes running in Mizoram. The centre-state ratio for scheme until last year was 90:10. Under that formula, in 2014, after the state government raised its spending to Rs 14 crore, the centre released another Rs 128.9 crore for this programme

Rajshekhar also says that the centre did not take the states on board when accepting the FFC recommendations. If that is the case, it indeed is a blow to the ‘Team India’ that PM Modi has been talking about. Perhaps NITI‘s flexible funds can step in here? But the lack of consultation is worrying and reinforces the alienation of the small north-eastern states with limited resource bases.

When the FFC recommendations were announced, it was already too late for the states to factor in the changes into their annual budgeting process. As a result, state government budgets for 2015-16 are likely to see plenty of volatility, with surplus funds in some areas and stark deficits in some others. Will the allotted funds flow to the states in time, and will those funds be allocated to deficit-finance developmental schemes is yet to be seen. I am afraid 2015-16 might be a chaotic year for many states.

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