Thaindian News

New Delhi, Feb 25 (IANS) The government has largely accepted the suggestions made by the 13th Finance Commission that has recommended a 32-percent share of the federal taxes for states, as well as grants for local, urban and rural elected bodies for the first time.
“We have accepted all the major recommendations of the commission,” Finance Minister Pranab Mukherjee told reporters here, after tabling the report in the Lok Sabha, the lower house of parliament, along with the action taken report.

“The states will get 1.5 percent more,” the finance minister said, referring to 30.5 percent share of the federal taxes that is being shared with the states at present.

The other suggestions by the commission include a cut in the federal government’s fiscal deficit to 3 percent of gross domestic product (GDP) by the end of fiscal year 2013-14, and elimination of revenue deficit within a year later.

It has also said the fiscal deficit — which is the excess of central government’s total expenditure over total revenues, loan recoveries and other receipts — must be brought down to 4.2 percent in 2012-13, against 6.8 percent budgeted for the current fiscal.

The 13th Finance Commission, under economist and former bureaucrat Vijay Kelkar, was set up by a presidential order of Nov 13, 2007 to make recommendations on the tax devolution between the federal government and the states, and how to augment resources.

The report also said the federal government and states must conclude a “grand bargain” to implement the goods and services tax regime. “To incentivise implementation of the grand bargain, this commission recommends sanction of a grant of Rs.50,000 crore ($10 billion).”

Significantly, the commission has said that structural shocks such as arrears arising out pay commission awards should be avoided by making the pay award commence from the date on which it is accepted.