Centre Asks 15th Finance Panel to Review Special and Nutritional Grants Worth Rs 14,499 Crore

The finance ministry has asked the Fifteenth Finance Commission (FFC) to review its recommendations for special grants and nutritional grants worth Rs 14,499 crore to states for the financial year 2020-21, it has been reported. While the FFC has provided rationale in proposing the grants and stated that further grants for other states will also be recommended in the final report, the Centre has rejected the crucial suggestions.

The first report of the FFC tabled in Parliament alongside the Union Budget has recommended ‘special grants’ worth Rs 6,764 crore to Karnataka, Telangana and Mizoram for 2020-21. “This grant will be adequate to make up the shortfall between united transfers received by these states in the form of tax devolution plus revenue deficit grant in 2020-21 vis-a-vis the corresponding amount in 2019-20,” noted the commission. Accordingly, Karnataka was recommended a grant of Rs 5,495 crore, Telangana (Rs 723 crore) and Mizoram (Rs 546 crore).

Stating that the reduction of malnutrition among children requires higher allocation of funds, the commission noted: “The impact of malnutrition on the development of brain and hence on early education has prompted us to recommend additional grants of Rs 7,735 crore to the states for nutrition for 2020-21, in addition to the grants allocated by the union government under centrally sponsored schemes.” FFC has categorically stated that these grants are an additionality while mentioning that they are not to be substituted for either the state share or Union share.

FFC will submit its final report in October 2020.

Southern States to Lose in Tax Devolution formula

Except Tamil Nadu, all the four southern states -- Andhra Pradesh, Karnataka, Kerala and Telangana -- see a reduction in the share of taxes for 2020-21, as per the recommendations of the FFC.

Proposing the new tax devolution formula, the commission suggested that states be given 41% of the Centre’s net tax receipts during 2020-21 against 42% of the previous finance commission. The commission noted that the 1% change of the divisible pool was to adjust the reorganisation of Jammu & Kashmir and Ladakh Union Territories.

While recommending the horizontal devolution among states, the FFC has considered population, area, forest & ecology, income distance, demographic performance and tax effort as criteria whose weights are assigned as 15%, 15%, 10%, 45%, 12.5% and 2.5% respectively.

For the demographic criteria, the commission has used population data of 2001 census as against all finance commissions since the sixth finance commission which considered the 1971 census.

Kerala Finance Minister Thomas Isaac criticised the demographic performance weight, saying that this has rendered a loss to southern states. Speaking to NDTV, Isaac said: “Kerala, Telangana and Andhra have been severely hit. But historically, Kerala's condition is going to be terrible with the lowest-ever share in central tax at 1.9%.”

As per the recommended share of taxes by the FFC, Karnataka saw a reduction of 22.5% change in share to 3.65% in 2020-21 against 4.71% share in the last five years, followed by Kerala which will see a reduction in share by 22.4%, Telangana (12.7%), Assam (5.4%) and Andhra Pradesh (4.4%). Whereas, Maharashtra, Rajasthan, Arunachal Pradesh and Bihar will see significant gains in the share of devolved taxes.