Amidst simmering discontent among states over lower fund allocation, economists on Tuesday said in FY25, the Union government has budgeted to share 35.5 per cent of the divisible tax pool with states, lower than the 15th Finance Commission’s recommended 41 per cent.
A closer look at the Union budget documents over the years reveals that the tax devolution given to states has been significantly lagging compared with the Finance Commission’s recommended level.
“We believe that this, along with some focus on the marginalised section, has been the key takeaways from the budget. However, the lower transfers to states remain a matter of concern,” Sunil Kumar Sinha, principal economist, India Ratings and Research (Ind-Ra), said.
The states’ share in central taxes has been trending downwards. It averaged 35.4 per cent of the divisible pool during FY21-FY25BE, down from 39.8 per cent during FY16-FY20, the rating agency said.
Finance secretary T.V. Somanathan told a news channel that “in the operation of the finance ministry as regards funding to states, we go by a formulae that has been laid down by the Finance Commission... we have not discriminated, for or against, any state government”.
He said sharing of tax revenue — distribution of GST has been a contentious issue for years with Bengal and Punjab frequently claiming that dues have been withheld — is based on percentages laid down by the Finance Commission and audited by the Comptroller and Auditor General.
“We release funds according to percentages... so as long as the previous instalment was spent, the money will be released,” Somanathan said.