The Government doesn’t share
The vile conflicts of State and Centre revenue
Main source of income for both entities: Tax Revenue. Both the centre and state governments fight for the bigger pie. Of the national wallet, 42% should be given to the States. But the reality seems far from that. We have an anarchist government that doesn’t believe in sharing credit, which comes from the developmental work done, which in turn is dependent on the quantum of public funds in their kitty. So they’ve evolved newer ways to keep more public funds with them.
Like the increase in cesses and surcharges that is causing to widen the gap between states share of divisible pool (of mandated public funds that should be allotted to them) and states share in gross revenue. Cesses and surcharges are outside the remit of the finance commission’s devolution formula, and hence need not be shared with states.
The central government and state governments are at loggerheads on a range of issues:
- the increased levy of cesses by the centre
- the compensation for shortfall in GST (goods and services tax) revenues
- extraordinary demands on the 15th finance commission to carve out funds for central subjects such as defense and internal security
To tide over the shortfall in revenues, market borrowings by state governments have gone up. Unsurprisingly, the yield gaps between State Development Loans (SDLs) and the benchmark rate (GSEC-Government bond yields) have widened compared to last year, meaning that states have to bear additional costs of servicing these loans. The spreads would have been much higher had RBI not intervened with Open Market Operations (OMOs) in SDLs.
The State economy is at RBI’s mercy and the RBI is (now) in the Centre’s pocket. Amongst this bureaucratic and political tug of war, it is ultimately the unemployed and the impoverished that bear the brunt.
