Key Recommendations
· For vertical devolution, FFC has recommended 41% share of the divisible pool of central taxes (which excludes cess and surcharge). Tax devolution is estimated around Rs. 42 trillion over the five years (2021-2026).
· Further, this 41% will undergo horizontal devolution among states. FFC has kept a wide range of per-capita devolution pattern from Rs. 16000 to Rs. 4.7 lakh for states. o Uttar Pradesh and Bihar could receive 28% share due to greater needs.
o However, FFC criteria gives less weight (45%) to income gap (a measure of interstate disparity) than the previous commissions – causes a concern for poorer states, whose per capita income gap has tripled when compared to richest states.
· FFC has also made a trade-off between need-based equity and performance – 2.5% weightage given for revenue generation, 12.5% for demographic performance.
o This reduced weightage to equity-based criteria was seen as least progressive, however FFC responded saying State-specific grants will be provided in addition.
o But, for the latter, Center’s acceptance is required – which is still to be done.
o Part of the grants are for specific sectors, such as education and health, which have not yet been accepted by the Centre.
