New system of fund devolution to states ‘faulty’

Mukesh Ranjan

Tribune News Service

New Delhi, October 31

Indicating the first sign of a critical view on the government’s decision of dismantling Planning Commission, a report sponsored by NITI Aayog noted that “general transfer of resources is creating regional disparities” and has suggested that specific transfers (scheme-wise) are critical for poor states like Bihar, West Bengal and Odisha.

Since Prime Minister Narendra Modi took charge of the country, the time-tested system of financial devolution to states based on Gadgil-Mukherjee formula through the Planning Commission was done away with.

Making a case against the new system, the report, titled “Central Transfers to states in India: Rewarding Performance while Ensuring Equity”, a copy of which is with The Tribune, says: “In 2014-15, only 71 per cent of the allocated funds were disbursed in case of rural employment guarantee scheme and the extent of difference varied between 38 per cent in Bihar, the poorest and 91 per cent in West Bengal, a middle-income state. This creates uncertainty in implementing schemes and states with greatest shortfall in services suffer the most.”

Modi had constituted a committee of selected chief ministers with Shivraj Singh Chouhan as the convener to consolidate and rationalise centrally sponsored schemes (CSS). The panel consolidated the schemes into 28 (147 in 2012 and 66 in 2013) and classified them into six “core of the core”, 22 “core”, and 45 “optional” categories with matching requirements from states stipulated at 30 per cent, 40 per cent, and 50 per cent, respectively. The re-designing of fund flow was done after the 14th Finance Commission enhanced states’ share of divisible pool of taxes from 32 to 42 per cent.”

What NITI-sponsored report says

In 2014-15, only 71 per cent of the allocated funds were disbursed in case of rural employment guarantee scheme and the extent of difference varied between 38 per cent in Bihar (the poorest state) and 91 per cent in West Bengal (a middle-income state). This creates uncertainty in implementing schemes and states with greatest shortfall in services suffer the most.