FUNDS RECOMMENDED BY 12th FINANCE COMMISSION AND RELEASED BY GOVT. OF INDIA IN DIFFERENT YEARS (Rs. in Crores) Released by Recommendation Released by Recommendation Released by Recommendation Recommendation Released Recommendation Released by Recommendation Released by SL PURPOSES / SCHEMES GOI by of TFC GOI of TFC GOI of TFC of TFC by GOI of TFC GOI of TFC GOI (31.12.07) 2005-06 2006-07 2007-08 2008-09 2009-10 2005-10 1 Non-plan Revenue Deficit Grant. 488.04 488.04 0.00 0.00* 0.00 0.00 0.00 0.00 0.00 0.00 488.04 488.04 2 Central Share of Calamity Relief 226.16 226.16 232.68 232.68 239.53 239.53 246.73 324.50 254.27 0.00 1199.37 1022.87 3 Top up Grant for Education Sector 53.49 53.46 58.57 58.57 64.13 64.13 70.22 35.11 76.89 0.00 323.30 211.27 4 Top up Grant for Health Sector 31.22 31.22 34.81 34.81 38.81 19.41 43.28 21.64 48.25 0.00 196.37 107.08 5 Maintenance of Roads & Bridges. 0.00 0.00 368.77 368.77 368.77 368.77 368.77 368.77 368.77 0.00 1475.08 1106.31 6 Maintenance of Public Buildings. 0.00 0.00 97.28 97.28 97.28 97.28 97.29 48.65 97.29 0.00 389.14 243.21 7 Maintenance of Forests. 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 0.00 75.00 60.00 8 Heritage Conservation 0.00 0.00 12.50 12.50 12.50 12.50 12.50 9.37 12.50 0.00 50.00 34.37 9 State Specific Need (a+b) 0.00 0.00 42.50 40.50 42.50 3.75 42.50 46.44 42.50 0.00 170.00 131.44 a) Chilika Lake 0.00 0.00 7.50 7.50 7.50 3.75 7.50 11.44 7.50 0.00 30.00 26.44 b)Sewerage System for Bhubaneswar 0.00 0.00 35.00 33.00 35.00 0.00 35.00 35.00 35.00 0.00 140.00 105.00 10 Grants for local bodies. (a+b) 181.40 181.40 181.40 171.00 181.40 80.30 181.40 181.40 181.40 0.00 907.00 725.60 a) Grants for Panchayati Raj 160.60 160.60 160.60 160.60 160.60 80.30 160.60 160.60 160.60 0.00 803.00 642.40 Institutions (PRIs) b) Grants for Urban local bodies 20.80 20.80 20.80 10.40 20.80 0.00 20.80 20.80 20.80 0.00 104.00 83.20 (ULBs) Total 995.31 995.28 1043.51 1031.11 1059.92 900.67 1077.69 1050.88 1096.87 0.00 5273.30 4130.19 11 Share in Central Taxes and Duties 4719.43 4876.75 5403.19 6220.42 6199.86 5258.50 7129.82 8279.96 8217.17 1264.18 31669.47 28487.81 GRAND TOTAL 5714.74 5872.03 6446.70 7251.53 7259.78 6159.17 8207.51 9330.84 9314.04 1264.18 36942.77 32618.00 * Besides, Rs. 58.66 Crore towards Central Share of CRF for 2007-08 and Rs. 25.00 Crore from NCCF has been received on 11.9.06 during 2006-07 336 Executive Summary of the Memorandum of Govt. of Orissa to 13th Finance Commission Introduction: (i) Centre-State financial relation in India is built upon the three pillars of expenditure assignment, revenue assignment and inter- Governmental transfers. The framework is provided in the Constitution as well as in conventions and practices. The Finance Commission is the constitutional body assigned with periodic assessment of the system in general and inter-governmental transfers in particular. (ii) In terms of the constitutional mandates Finance Commission can and should consider the requirements of the State in their totality and not confine their attention to only the non-plan revenue account of the State. (iii) The 13th Finance Commission begins its deliberations at a time when the immediate past and the immediate future are at odds. The healthy growth of the economy, higher Central tax devolutions and much-needed reforms had transformed the perpetually deficit- ridden finances of most of the States including Orissa into relatively comfortable situations, at least in meeting the committed revenue expenditures. (iv) The immediate future is not so positive – several factors like signs of slowing down of economy, rising prices, deferred expenditure liabilities, pay revision as per recommendations of 6th Central Pay Commission constitutes heavy strain on the State finances. (v) For the State the imperatives of development predict a serious shortage of resources. The State has been only recently experiencing some amount of industrialisation but the vast potential of agriculture in the State that is yet to be realized in full must be tapped to the maximum possible extent. The strategy to achieve this goal has to include large expenditure on both social and physical infrastructure as also catering to the more immediate requirements of the poor. (vi) Recent industrialization in the State so far has been largely confined to minerals and mineral-based industries. Exploitation of minerals per se may not help the State much because the royalties received are not enough to meet even the costs of appropriate corrective measures for pollution, loss of environment and ecological assets and displacement of people. (vii) In the scheme of public finances, the developmental imperatives would require higher capital expenditure and larger revenue expenditure. The expenditure assessments by the Finance Commission have to be based on some measurement of Memorandum to 13th Finance Commission 337 expenditure needs rather than past trends as assigning future expenditure requirement based on data for a base year is particularly unsuitable in a developing State like Orissa. (viii) The primary objective of the Finance Commission ought to be equity. Predominance of the equity objective is implicit in the Indian constitutional provision as Article 275 of the Constitution states that grants are to be provided to “such States as Parliament may determine to be in need of assistance”. Obviously such assistance is not intended for all States indiscriminately. (ix) There has to be a balance between equity and efficiency so as to help the less developed States, keeping equity as the prime consideration. (x) Since many of the less developed States are ones with highest growth potential, greater allocation of resources to these areas would benefit the entire nation by maximising national growth and spreading out the benefits of high growth. (xi) The Constitution of India envisaged the Finance Commission to be the sole arbiter of Centre-State transfers. The role of plan transfers and the Central Plan/Centrally Sponsored schemes ensure that the Finance Commission can truly fulfil its constitutional responsibilities only if it fully takes into account other forms of intergovernmental transfers than those it recommends itself. Major items of expenditure of the Government of India have a distribution that favours the developed States to some extent (Central expenditures like its investments in public enterprises and railways, food & fertilizer and petroleum subsidies). Therefore, the degree of the equalisation that the Finance Commission desires to bring about has to be adjusted upwards in their recommendations to compensate for the net disequalising effect of Central interventions. (xii) By excluding the plan expenditure and the capital account, the Finance Commission implicitly assumes that all States can raise the necessary resources for these expenditures on their own as supplemented by plan and other grants. A more comprehensive method can be to first make the estimates of resource deficits both under non-plan and plan and then assess the amounts of plan (and other) grants and arrive at a figure of overall deficits to be tackled by the Commission. (xiii) When the growth of Central Tax revenue is less than anticipated, States like Orissa lose heavily on account of shortfall of developmental resources. To prevent this from happening again the Commission may recommend a floor level of devolution equal to 100% of the estimated tax devolution. The State Govt. has lost Rs.894.67 crore and Rs.3663.13 crore during 1995-2000 and 2000-05 on recommendations of the 10th and 11th Finance Commissions respectively in this score. Memorandum to 13th Finance Commission 338 (xiv) It is no coincidence that the most debt-stressed States in India are the least developed States. The basic theme running through the entire structure of fiscal federalism in India is the pre-devolution vertical imbalances, severe horizontal imbalances, lack of equalisation in the system as a whole and the consequent mismatch of developmental aspirations of the States with the resources at their command, magnified manifold in the case of less developed States like Orissa. This mismatch has been bridged with large doses of borrowings in the past. But recently because of unsustainable debt burden most of the States have tried to rein in their borrowings by cutting down expenditure. The rise in debt GSDP ratio of the States has slowed down by the high growth rates in the recent past, the debt swap and debt relief mechanism, the phasing out of Plan loans and the unbundling of Government bonds of different States by the Reserve Bank of India. (xv) However, the basic problem of unsustainable debt remains. With the abolition of plan loans and the Government bond market looking at the States’ income levels rather than the States’ finances, a fully market based solution of the debt issue is fraught with risk for the least developed States.