FC-XIII urges calibrated exit from easy fiscal policy, proposes hike in revenue share for states
The FC-XIII has recommended a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10 as the main agenda of the Central Government. Further, it has suggested that the revenue deficit of the Centre needs to be progressively reduced and eliminated, followed by emergence of revenue surplus by 2014-15. Perhaps for the first time, a cap on the overall debt of the Government has been recommended. It has suggested a target of 68 per cent of the GDP for the combined debt of the Centre and the States to be achieved by 2014-15. Thus the fiscal consolidation path embodies steady reduction in the augmented debt stock of the Centre to 45 per cent of the GDP by 2014-15, and that of the States to less than 25 per cent of the GDP by 2014-15. The FC-XIII has also suggested the need for the FRBM Act to specify the nature of shocks that would require a relaxation of targets under the Act. It has recommended that the share of States in the net proceeds of shareable Central taxes be 32 per cent in each of the financial years from 2010-11 to 2014-15.The FC-XIII has recommended fiscal consolidation through the elimination of revenue deficit as the long-term target for both the Centre and States. Terming the goods and services Tax (GST) as a game-changing tax reform measure which will significantly contribute to the buoyancy of tax revenues and acceleration of growth as well as generate positive externalities, the FC-XIII proposed a grand bargain. The six elements of the grand bargain for the GST included: 1. the design; 2. operational modalities; 3. binding agreement between the Centre and States with contingencies for change in rates and procedures; 4. disincentives for non-compliance; 5. the implementation schedule and; 6. the procedure for States to claim compensation. For this purpose, the FC-XIII recommended the sanction of Rs 50,000 crore as compensation for revenue losses of States on account of the implementation of the GST. This amount would shrink to Rs 40, 000 crore were the implementation to take place on/after April 1, 2013 and further to Rs 30,000 crore were it to take place on/after April 1, 2014. The following are some of the key recommendations of the FC-XIII: * The share of States in net proceeds of shareable Central taxes shall be 32 per cent every year for the period of the award. * Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part of the shareable Central taxes, if the 88th Amendment to Constitution is notified and followed up by a legislations enabling States to levy service tax. * Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue. * The indicative ceiling on overall transfers to States on revenue account may be set at 39.5 per cent of gross revenue receipts of the Centre. * The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent. * New disclosures have been specified for the Budget/MTFP including on tax expenditure, public-private partnership liabilities and the details of variables underlying receipts and expenditure projections. * The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would require relaxation of the targets there under. * States are expected to be able to get back to their fiscal correction path by 2011-12 and amend their FRBM Acts to the effect. * State Governments are to be eligible for the general performance and special area performance grants only if they comply with the prescribed stipulation in terms of grants to local bodies. * The National Calamity Contingency Fund (NCCF) should be merged with the National Disaster Response Fund (NDRF) and the Calamity Relief Fund (CRF) with the State Disaster Response Funds (SDRFs) of the respective States. * A total non-Plan revenue grant of Rs 51,800 crore is recommended over the award period for eight States. A performance grant of Rs 1500 crore is recommended for three special category States that have graduated from a non-Plan revenue deficit situation. * An amount of Rs 19,930 crore has been recommended as grant for maintenance of roads and bridges for four years (2011-12 to 2014-15). * An amount of Rs 24,068 crore has been recommended as grant for elementary education. * An amount of Rs 27,945 crore has been recommended for State-specific needs. * Amounts of Rs 5,000 crore each as forest, renewable energy and water sector-management grants have been recommended. * A total sum of Rs 3,18,581 crore has been recommended for the award period as grants-in-aid to States. Powered by Capital Market - Live News
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