Centre, States To Discuss Tax Pool Sharing From May 30

The next few weeks will witness a lively debate and some amount of heart-burn on the issue of resource sharing between the Centre and states, and among the different states as well.

The Planning Commission is scheduled to begin a 20-day dialogue on the ninth plan with individual states on May 30, an occasion that will be used to iron out differences between the Centre and states on issues like reduction in subsidies and distribution of central resources to the states.

There is also a meeting of chief ministers on the cards to discuss finance minister P Chidambarams budgetary proposal on creating a single divisive pool of central resources, from which the states will be allocated 29 per cent. The proposal needs to be ratified by the state governments before it is implemented.

 

These meetings will be preceded by a meeting of the inter-state council on May 10. The council meet, organised by the home ministry, is expected to witness a debate on economic issues like Chidambarams alternate plan on devolution of resources.

The governments decision to adopt the Lakdawala method for poverty estimates has given rise to complaints from certain states like Andhra Pradesh that their share in central resources would diminish.

The plan panel is already trying to push through its ideas on special incentives to states on the basis of economic performance and the extent of resources transferred by them to Panchayati Raj institutions. This is besides the modified Gadgil formula, used for resource distribution.

Planning Commission deputy chairman Madhu Dandavate told Business Standard: The Kerala government has decided to transfer 41 per cent of its resources to Panchayati Raj institutions. This kind of decentralisation efforts should be encouraged through fiscal incentives.

The Andhra Pradesh government has said that the level of poverty has come down in the state because of a high level of subsidy extended by it, including rice distribution. The low level of poverty will lower its share in central resources. The state government wants the Centre to compensate it for the drain on its resources owing to subsidy.

On the other hand, poorer states like Bihar insist that poverty and population density should remain a major criterion in allocation of central resources. Chidambaram had said in his budget speech that a single divisive pool of central resources would be created and states allotted 29 per cent of the Centres earnings.

So far, the states have been drawing from central incomes under different heads like income tax, customs and excise duties. The plan panel will obtain the approval of the state governments for the divisive pool proposal during its interface with states and convene a special meeting of the chief ministers to put a stamp of approval on it.