NITI Aayog, 14th Finance Commission will enhance fiscal federalism: Survey
The Commission had also suggested a fiscal deficit target of 3.6 per cent for 2015-16
New Delhi: The recommendations of the 14th Finance Commission and the creation of NITI Aayog will enhance fiscal federalism, says the Economic Survey for 2014-15. "The renewed impulse towards fiscal federalism need not be detrimental to the Centre's fiscal capacity... the far-reaching recommendations of the FFC, along with creation of the NITI Aayog, will further the government's vision of cooperative and competitive federalism," the Survey said.
The 14th Finance Commission, headed by former RBI governor Y V Reddy, had made recommendations for far-reaching changes in tax devolution that will move the country towards greater fiscal federalism, conferring more fiscal autonomy to the states, it said. This will be enhanced by the FFC-induced imperative of having the scale of other central transfer of the states, it added.
The Commission had recommended an increase in states' share in central taxes to 42 per cent. The Centre has accepted the recommendations and will give states an additional Rs 1.78 lakh crore in 2015-16. It had also recommended a grants-in-aid of Rs 48,906 crore for 11 revenue deficit states, including Andhra Pradesh post division, West Bengal and Jammu and Kashmir, for 2015-16. For the period up to 2020, it will be over Rs 1.94 lakh crore.
Finance Minister Arun Jaitley had recently said that the Centre has accepted the recommendations of the Finance Commission and it shows NDA government's commitment to cooperative federalism. Jaitley had also said that the increase in states' share is "the largest ever change in percentage of devolution. In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2 per cent."
The Commission had also suggested a fiscal deficit target of 3.6 per cent for 2015-16 and 3 per cent in subsequent years. The government had set up NITI Aayog (National Institution for Transforming India) on January 1 to replace the 65-year-old socialist-era Planning Commission.
The Indian economy, the Survey said, appears to have gone past the slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of rupee. Saying that inflation has been on a downward trajectory between April-December, it projected the consumer price inflation at 5-5.5 per cent for 2015-16.
The declining inflation and a significant improvement in current account deficit (CAD), which is expected to come down to 1 per cent of GDP in 2015-16, have made India an attractive investment destination, it said. Private investments must remain the primary engine of long run growth, the Survey emphasised, adding that "public investment, especially in the Railways, will have to play an important role at least in the interim, to revive growth and to deepen fiscal connectivity".
In a separate chapter on 14th Finance Commission, the Survey quoted both first Prime Minister Jawaharlal Nehru and current PM Narendra Modi, to emphasise that adoption of FFC recommendation and creation of NITI Aayog would promote government's cooperative and competitive Federalism.
Recalling the golden rule of fiscal policy, it said the government should borrow to finance investment and not to fund current expenditure. It urged the government to bring down fiscal deficit to 3 per cent of GDP. Referring to subsidies, it said they were estimated to be Rs 3.78 lakh crore or 4.24 per cent of the GDP.
"They (Subsidies) may not be the government's best weapon for fighting poverty," it said, adding that often rich households benefit more from subsidies than a poor one. The Survey said the adoption of JAM number Trinity — Jan Dhan Yojana, Aadhaar and Mobile — would help in delivering subsidies to the poor in a targeted and less distorted manner.
Dwelling on the issue of manufacturing versus services, it said, "both are equally important in the Indian context... Similarly 'Skilling India' is no less important and deserves an equal importance as the other important goal of Make In India". It, however, expressed satisfaction that the number of stalled projects have plateaued and called for revitalising public private partnership model of investment to boost investment.