In a significant stride towards fostering cooperative federalism, the government has embraced the recommendations of the 14th and 15th Finance Commissions, recognising states as equal partners in development. According to the White Paper on the Indian economy published by the Government Of India and Ministry of Finance, over the past decade, approximately 41-42 per cent of Central taxes have been allocated to the states, marking a substantial increase from the previous share of 30-32 per cent.
This surge in resources devolved to the states, around 3.8 times higher than before, signifies a profound commitment to equitable distribution. Notably, this translates to an additional 1 per cent of GDP being allocated to the states.
According to the White Paper, the government’s support for states amidst changing dynamics is exemplified by its efforts to ensure timely financial assistance. Frontloading payments to states, alongside measures such as GST compensation cess, additional borrowings, and interest-free loans for capital expenditure, have bolstered state resources. These endeavours empower states to address their development and welfare priorities effectively.
The paper illustrated a comparison of transfers to states under the two regimes, demonstrating a significant increase in resources through tax devolution and Finance Commission grants. The commitment to provide resources equivalent to 1 percentage point of GDP to states underscores the government’s dedication to fostering state-led development initiatives.
Furthermore, data from budget documents highlight the tangible impact of these efforts, with a notable increase in the total amount allocated to states from 2004-05 to 2023-24. The average amount allocated during 2014-15 to 2023-24 stands at 4.24 lakh crore, a substantial increase from the average of 3.36 lakh crore during 2004-05 to 2013-14.
