National

States to take higher share of taxes, duties

By Our Special Correspondent

NEW DELHI, FEB. 3. The Union Cabineton Wednesday accepted in toto the recommendations of the 12th Finance Commission headed by Dr. C. Rangarajan. This means from April 1 this year, the share of the States in the taxes and duties collected by the Centre will go up to 30.5 per cent from 29.5 per cent over five years. The total share of the States in the Centre's taxes and duties is estimated to stand at Rs. 6,13,112 crores during this period.

Briefing newspersons here, the Finance Minister, P. Chidambaram, said the devolution of the higher share in the taxes and duties to the States would be linked to the decision on the levy of additional excise duty (AED) being imposed by the Centre.

Currently, the Centre levies AED only on sugar, tobacco and textiles. Mr. Chidambaram said the share of the States would remain at 30.5 per cent so long as the Centre retained the powers to levy AED on these items.

In effect, if a decision is taken during this five-year term to extend the powers of levying AED to the States, then the ratio will revert to 29.5 per cent.

Central grants

With a tilt in favour of grants to the States, the Commission has recommended a number of grants from the Centre. Mr. Chidambaram said such grants from the Centre were for the health sector in seven States, the education sector in eight States, apart from the maintenance of roads and bridges, buildings, forests, heritage conservation, local bodies, calamity relief and for specific needs in all States.

As the exact numbers had not as yet been worked out — the total States' share of Rs. 6,13,112 crores being an estimate — the Finance Minister said the total non-Plan deficit would be Rs. 56,855 crores and the total grant to the seven States for the health sector Rs. 5,887 crores. Similarly, the total grant for the education sector (in eight States) is estimated at Rs. 10,171 crores whereas the grant for maintenance of roads and bridges has been pegged at Rs. 15,000 crores. Likewise, buildings is set to account for Rs. 5,000 crores, heritage conservation Rs. 625 crores, State-specific needs Rs. 7,100 crores, local bodies Rs. 25,000 crores and calamity relief Rs. 16,000 crores.

Thus, while the total of non-plan deficit plus grants has been estimated at Rs. 1,42,639 crores which, along with taxes and duties, works out to Rs. 7,55,751 crores.

Loan rate cut

Mr. Chidambaram noted that all the loans extended to the States up to March 31, 2004, would be consolidated and they would attract an interest rate of 7.5 per cent against the existing 9 per cent. The repayment period would be 20 years.

The Minister made it clear that debt relief would be offered to the States provided they passed fiscal responsibility Acts and adhere to fiscal parameters in the proportion given by the Commission. He also clarified that all transfers from the Centre to States would only be in the form of grants. The States would also be at liberty to raise loans from the market if they so desired. As per the Commission's recommendations, the extra grants for the health sector are to be given to Assam, Bihar, Jharkand, Madhya Pradesh, Orissa, Uttar Pradesh and Uttaranchal, while for the education sector the States identified are Assam, Bihar, Jharkand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal.

© Copyright 2000 - 2009 The Hindu