States Want Devolution Plan Review Every 5 Years

The duration of the alternative scheme for devolution of resources from the Centre to the states, announced by finance minister P Chidambaram in his budget speech, will be one of the main issues at the meeting of the standing committee of the Inter-State Council today.

The Centre has accepted the 10th Finance Commissions recommendation of sharing 29 per cent of its resources with states for a period of 15 years. However, certain state governments are unwilling to commit themselves for a period of 15 years. Instead, these governments want the alternate scheme to be limited to five years since they expect more generous recommendations from the 11th Finance Commission, which is due to be appointed next month.

 

The committee is chaired by the Union home minister and includes the Union ministers for finance, industry, defence and human resources development. The Chief Ministers of six states, namely West Bengal, Orissa, Assam, Rajasthan, Andhra Pradesh and Maharashtra are also its members.

The last meeting of the committee had requested the Centre to give up its resistance to create a single divisible pool of resources. Now that the Centre has accepted the suggestion, the standing committee will endorse the decision and focus on the duration of the alternate devolution scheme, said Planning Commission member G Thimmaiah.

Chidambaram had announced the creation of a single divisible pool. However, he had left the issue of how long the arrangement should last open for debate.

The current practice is to distribute 26 per cent of the Centres resources and the entire income from additional excise duty to the states. This works out to 29 per cent of central resources.

The share of central resources thus remains the same under the alternative scheme. But the states could get a larger amount of central funds in aggregate terms under the new scheme because the Centres tax income is constantly on the rise.

Under the earlier scheme, states suffered whenever the Centre reduced the rate of income tax. Now that there is a single divisible pool of resources, changes in tax rates will affect both the states and the Centre in the same way.

However, the meeting will not discuss the distribution of central resources among different states. This is because the Gadgil formula on distribution of resources falls within the ambit of the National Development Council, not that of the Inter-State Councils standing committee.

The meeting will also discuss issues relating to Article 356 of the Constitution. Regional parties have consistently opposed this article, which deals with the Centres powers to remove a state government.