In her Budget speech, Finance Minister Nirmala Sitharaman on Tuesday underlined the need for collaboration between the Centre and states to take up the next-generation reforms covering land, labour, capital and entrepreneurship.
As far as revenue share goes, the government has projected to give about 32.5 per cent of central taxes to states during FY25, against the 15th Finance Commission’s recommendation of 41 per cent, according to the Union Budget estimate.
Provisional estimates for FY24, too, show a similar share of states in the central taxes at 32.6 per cent. In absolute terms, however, compared to the provisional amount of Rs 11.3 trillion, Budget estimates for FY25 show an increase to Rs 12.5 trillion.
Compared to the interim Budget announced on February 1, the amount devolved to the states is only marginally high from Rs 12.2 trillion.
The final report of the 15th Finance Commission had recommended transfer of 41 per cent of central taxes to the states after two Union Territories were carved out of Jammu and Kashmir.
The states’ share, however, has been lower due to cess and surcharge imposed by the Centre, which are not shared with states.
States have often complained about lesser devolution compared to the recommendations of the Finance Commission.
The Centre would also transfer other funds to the states through various centrally sponsored schemes such as Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), Jal Jeevan Mission, etc.
The transfer to states for centrally sponsored schemes in FY25 is to be around Rs 5 lakh crore, which is a decline of 9.8 per cent from the provisional actuals for FY24.
Grants in aid for creation of capital account for FY25 have increased by 29 per cent to Rs 3.9 lakh crore compared to the provisional actuals of Rs 3 lakh crore in FY24.
Promoting next-gen reforms:
Sitharaman in her Budget speech said the government will formulate an Economic Policy Framework to set the scope of the next generation of reforms for facilitating employment opportunities and sustaining high growth.
The Centre would initiate and incentivise reforms for improving productivity of factors of production, and facilitating markets and sectors to become more efficient.
“For promoting competitive federalism and incentivising states for faster implementation of reforms, I propose to earmark a significant part of the 50-year interest-free loan,” the FM said.
In her interim Budget speech, she had announced that the scheme of 50-year interest-free loan for capital expenditure to states would be continued in FY25 with a total outlay of Rs 1.3 lakh crore.
States would get to decide how to spend most of this fund.
States would be incentivised to complete land-related reforms and actions, both in rural and urban areas, within the next three years through appropriate fiscal support.
Assignment of Unique Land Parcel Identification Number and establishment of land registry are some of the steps to be undertaken in rural areas.
Sitharaman said the government would undertake comprehensive integration of e-shram portal with other portals, and facilitate one-stop solution for employment and skilling.
Under capital- and entrepreneurship-related reforms, the government would come up with a financial sector vision and strategy document to prepare the sector in terms of size, capacity and skills to set the agenda for the next five years.
“Effective implementation of several of these reforms requires collaboration between the Centre and the states, and building consensus, as development of the country lies in development of the states,” Sitharaman said.
