14th Finance Commission (FFC) Report Tabled in Parliament




14th Finance Commission (FFC) Report Tabled in Parliament; FFC Recommends by Majority Decision that the States’ Share in the Net Proceeds of the Union Tax Revenues be Raised to 42% Which is a Huge Jump from the 32% Recommended by the 13th Finance Commission


Article 280 of the Constitution of India requires the Constitution of a Finance Commission every five years, or earlier.  For the period from 1st April, 2015 to 31st March, 2020,  the 14th Finance Commission (FFC) was constituted by the orders of President on 2nd January, 2013 and submitted its report on 15th December, 2014.
 The Finance Commission is required to recommend the distribution of the net proceeds of taxes of the Union between the Union and the States (commonly referred to as vertical devolution); and the allocation between the States of the respective shares of such proceeds (commonly known as horizontal devolution).
 With regard to vertical distribution, FFC has recommended by majority decision that the the States’ share in the net proceeds of the Union tax revenues be 42%. The recommendation of tax devolution at 42% is a huge jump from the 32% recommended by the 13th Finance Commission.  The transfers to the States will see a quantum jump. This is the largest ever change in the percentage of devolution. In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2% increase. As compared to the total devolutions in 2014-15 the total devolution of the States in 2015-16 will increase by over 45%.
 The consequence of this much greater devolution to the States is that the fiscal space for the Centre will reduce in the same proportion. As recorded in Chapter-8 of FFC’s Report, amongst other demands of the States, the States had demanded both an increase in share of tax devolution, and a reduced role of CSS.  In Paras 8.6 & 8.7 of its Report, the FFC has noted that
“8.6:Another dominant view has been that a majority of the resources should flow in the form of tax devolution­­--- ”
“8.7: An overwhelming majority of States have suggested reducing the number of CSS as well as outlays on them---.”
 FFC has taken the view that tax devolution should be primary route of transfer of resources to States. It may be noted that in reckoning the requirements of the States, the FFC has ignored the Plan and Non-Plan distinction; it sees the enhanced devolution of the divisible pool of taxes as a “compositional shift in transfers from grants to tax devolution” (Para 8.13 of  FFC Report).  Thus, basically the FFC Report expects the CSS, in fact Central assistance to State Plans as a whole, to reduce and be replaced by greater devolution of taxes.
 Keeping in mind the spirit of cooperative federalism that has underpinned the creation of  National Institution for Transforming India (NITI), the Government has accepted the recommendation of the FFC to keep the States’ share of Union Tax proceeds (net) at 42%.
 In recommending horizontal distribution, the FFC has used broad parameters of population (1971) and changes of population since, income distance, forest cover and area.  The details of this criteria and the weight assigned to them are given in  Annexure-1.  The State-wise share of the divisible pool of Central taxes, in percentage terms, is given in Annexure-2.  As service tax is not levied in J&K, the share of the States, in percentage terms has been calculated separately by FFC.  These are given in Annexure-3.
 The Finance Commission is also required to recommend on ‘the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State’.
FFC  has recommended distribution of grants to States for local bodies using 2011 population data with weight of 90% and area with weight of 10%. The grants to States will be divided into two, a grant to duly constituted Gram Panchayats and a grant to duly constituted Municipal bodies, on the basis of rural and urban population.
 FFC has recommended grants in two parts; a basic grant, and a performance grant, for duly constituted Gram Panchayats and municipalities. The ratio of basic to performance grant is 90:10 with respect to Panchayats and 80:20 with respect to Municipalities.
 FFC has recommended out a total grant of Rs 2,87,436 crore for five year period from 1.4.2015 to 31.3.2020. Of this the grant recommended to Panchayatas is Rs 2,00,292.20 crores and that to municipalities is Rs 87,143.80 crores. The transfers in the year 2015-16 will be Rs 29,988 crores.  Inter-se share of each state in respect of local bodies grant is at Annexures-4 and 5.
 The Government has accepted the recommendations of the Finance Commission with regard to grants to local bodies. The Finance Commission is also required to ‘review the present arrangements as regards financing of Disaster Management with reference to the National Calamity Contingency Fund and the Calamity Relief Fund and the funds envisaged in the Disaster Management Act, 2005 (Act 53 of 2005), and make appropriate recommendations thereon’.
 FFC has recommended that up to 10 percent of the funds available under the SDRF can be used by a State for occurrences which State considers to be ‘disasters’ within its local context and which are not in the notified list of disasters of the Ministry of Home Affairs.
 The FFC has noted in Para 10.26 as follows:
 “The financing of NDRF has so far been almost wholly through the levy of cess on select items, but if the cess are discontinued or when they are subsumed under the Goods and Services Tax (GST) in future, we recommend that the Union Government consider ensuring an assured source of funding for NDRF”.
 In view of the above, with regard to disaster relief, the Government has decided that the percentage share of the States will continue to be as before, and that the flows will also be of the same order, as in the existing system; and that, once GST is in place, the recommendation of FFC on disaster relief would be implemented in the manner recommended by the Finance Commission.
 
The Finance Commission is also required to make recommendation regarding the principles governing grants-in-aid of the States’ revenues, by the Centre. As noted by the FFC in Para 11.28, while calculating grants to the States they “have departed significantly from previous Finance Commissions, by taking into consideration a States’ entire revenue expenditure needs without making a distinction between Plan and Non-Plan”.  Taking thus into account the expenditure requirements of the States, the tax devolution to them, and the revenue mobilization capacity of the States, the FFC have recommended “Post-Devolution Revenue Deficit Grants” of a total of Rs. 1,94,821 crores, for the five year period.  The States of Andhra Pradesh, Assam, J&K, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and West Bengal (a total of 11 States) have been identified for receiving these revenue deficit grants.  The details are given in Annexure-6. The Government has accepted the recommendation in principle.
 To summarize, the Grants-in-Aid to the States total to Rs. 5.37 lac crores is given in the Table given below:
 
Grants-in-Aid to States

(Rs. crore)

1
Local Government(all States)
287436
2
Disaster Management(all States)
55097
3
Post-devolution Revenue Deficit     (11 States)
194821

Total
537354

As stated above, the compositional shift recommended by the FFC would substantially impact Central Assistance. In this regard, para 7.43 of the FFC Report states as follows :

“Plan revenue expenditure of States is financed by States’ own resources, borrowing and Plan grants from the Union. The Plan grants include normal Central assistance, which is untied,additional Central assistance for specific-purpose schemes and transfers,special Plan assistance,special Central assistance,Central Plan schemes and CSS.For the purpose of our assessment of Plan revenue expenditure of States, we have included expenditure incurred on State Plans and States’ contribution to CSS. This excludes Union expenditure on CSS, central Plan schemes and North Eastern Council Plan schemes and externally aided projects financed through grants from the Union.  We have estimated the 2014-15 base year Plan revenue expenditure (as defined above) for each State, applying an annual growth rate of 13.5 per cent over 2012-13 and 2013-14.  For the purpose of our projection period, we have assumed an annual growth rate of 13.5 per cent over base year estimates for all the States, implying that the Plan revenue expenditure will increase at the same rate as the GDP growth rate.”
 Based on the above, over 30 Centrally Sponsored Schemes have been identified which ought to have been transferred to the States because expenditure on them has already been taken into account as State expenditure, in arriving at the greater devolution of 42% to the States.    However, keeping in mind that many of these schemes are national priorities, and some are legal obligations (such as MGNREGA) and in order to underline the Central Government’s continued support to national priorities, especially with regard to schemes meant for the poor, most of these are proposed to be continued.  The Government has decided that only 8 Centrally Sponsored Schemes be delinked from support from the Centre.
          Certain programmes of the Government will have to continue unaltered as they are either legal/Constitutional obligations, or are privileges available to the elected representatives for welfare of their constituents. Further, and more importantly it is proposed that the Union Government may continue to support   certain programmes which are for the benefit of the socially disadvantaged in an unaltered manner from its own resources.
 In respect of various Centrally sponsored schemes, the sharing pattern will have to undergo a change with States sharing a higher fiscal responsibility for scheme implementation.  Details of changes in sharing pattern will have to be worked out by the administrative Ministry/Department on the basis of available resources from Union Finances.

Other recommendations of the FFC      
In addition to the recommendations regarding Vertical, and Horizontal devolution and grants, the FFC has made certain other recommendations. These relate to cooperative federalism, Goods & Services Tax, Fiscal Consolidation Roadmap, Pricing of Public Utilities and Public Sector Enterprises. The recommendations of the Finance Commission will be examined by the Government in due course in consultation with the concerned stakeholders.

 Click here to see Annexure.

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Quarterly Report on Debt Management for the Quarter October-December 2014 Released; Dated Securities worth Rs.1,45,000 crore issued taking the Gross Borrowings during April-December 2014 to Rs. 4.97,000 crore (82.8 per cent of be), as compared with Rs. 5,09,000 crore (87.9 per cent of be) in the corresponding period of the previous year

Since April-June (Q1) 2010-11, Middle Office (MO), Budget Division, Department of Economic Affairs, Ministry of Finance, Government of India is bringing-out a Quarterly Report on Debt Management on regular basis. The Current Report pertains to the Quarter October-December 2014 (Q 3 FY 2014-15).

During Q3 of FY15, the Government issued dated securities worth Rs.1,45,000 crore taking the gross borrowings during April-December 2014 to Rs. 4.97,000 crore (82.8 per cent of BE), as compared with Rs. 5,09,000 crore (87.9 per cent of BE) in the corresponding period of the previous year. Net market borrowing during April-December 2014 at Rs. 3,61,974 crore or 78.5 per cent of BE was lower than Rs. 4,34,629 (89.7 per cent of BE) in the previous year. An amount of Rs. 12,522.064 crore worth G-Sec of repurchased securities (Rs. 18,805 crore) amount was maturing during current year and has already matured till Q3 of FY 15. An amount of Rs. 6,282.881 crore worth G-Sec repurchased was scheduled to mature in FY2015-16. Auctions during Q3 of FY15 were held broadly in accordance with the pre-announced calendar. During the quarter, emphasis on re-issues was continued with a view to build up adequate volumes under existing securities imparting greater liquidity in the secondary market. Two new securities of 12 year and 30 year maturity, were issued during the quarter. The amount issued under new securities constituted Rs. 24,000 or 16.6 per cent of total issuances during Q3 of FY 15, remaining being re-issues. The weighted average maturity (WAM) of dated securities issued during Q 3 of FY15 at 14.75 years was higher than 14.70 years for dated securities issued in Q 2 of FY15. The weighted average yield (cut-off) of issuance during Q2 of FY15 also declined to 8.24 per cent from 8.67 per cent in Q 2 of FY15, reflecting a moderation in yields during the quarter. Liquidity conditions in the economy remained generally comfortable during the quarter, barring quarter-end when liquidity in market tightened on account of advance tax outflows. with the liquidity deficit, as reflected by net borrowings from RBI, remaining below the Reserve Bank’s stated comfort zone. The cash position of the Government went into deficit mode during November, 2014 and was generally in deficit till mid-December 2014 on account of mismatch in nature of its revenue and expenditure (cash flow). Government took recourse to CMB (Rs. 10000 crore) in addition to WMA to meet its deficit.

The public debt (excluding liabilities under the ‘Public Account’) of the Central Government provisionally increased by 2.1 per cent in Q3 of FY 15 on Q-o-Q basis as compared with an increase of 2.3 per cent in the previous quarter (Q2 of FY15). Internal debt constituted 91.9 per cent of public debt as at end-December 2014, while marketable securities accounted for 84.7 per cent of public debt. About 26.5 per cent of outstanding stock has a residual maturity of up to 5 years, which implies that over the next five years, on an average, 5.3 per cent of outstanding stock needs to be rolled over every year. Thus, the rollover risk in the debt portfolio continues to be low. The implementation of budgeted buy back/ switches in coming years is expected to reduce roll over risk further.

G-Securities marched upward during the quarter, following its upward trend since mid-August 2014 The G-Sec market opened Q3 on positive sentiment on expectations of low inflation number as crude continued its downward fall. The momentum was bolstered by continually declining oil prices, which has salutary impact on both fiscal and current account deficit situation. Market also welcomed announcement of diesel price deregulation by the government. US Fed concluded its last tranche of USD 15 billion bond buying program in last week of October 2014, and reiterated its guidance to keep federal fund rates at near zero level for a considerable time. Market saw intermeeting corrections on profit taking on long rallies, OMO sales from RBI, etc., during mid-November and traded in a range for rest of the month. Overall bonds yields moderated across the curve, compared to previous quarter and the yield curve flattened at the longer end of the curve. Trading volumes, on an outright basis, were higher by 44.55 per cent over the previous quarter, due to higher trading on account of Central government dated securities. The annualised outright turnover ratio for Central government dated securities for Q3 of FY15 increased to 10.47 from 8.27 during the previous quarter.

The detailed Report on Debt Management for the Quarter October-December 2014 (Q 3 FY 2014-15) is also available on Finance Ministry’s website: finmin.nic.in.


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Promoting Storage of Farm Production


For storing the farm production and to arrest post harvest horticulture losses, the Ministry of Food Processing Industries has been implementing a Central Sector Scheme of Cold Chain, Value Addition and Preservation Infrastructure since 2008-09 throughout the country. The Integrated cold chain and preservation infrastructure can be set up by individuals, groups of entrepreneurs, cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs), NGOs, Central/State PSUs, etc. Under the scheme the financial assistance is provided as under:-

General
Areas
Difficult areas including Northeast States, Sikkim and Hilly areas like Jammu & Kashmir, Himachal Pradesh and Uttarakhand
Maximum amount of Grant-in-aid
50%
75%
Rs. 10.00 crore

  The scheme has the following components:-
a.          Minimal Processing Centre at the farm level. This centre may have facilities for weighing, sorting, grading, waxing, packing, pre-cooling, Controlled Atmosphere (CA)/ Modified Atmosphere (MA) cold storage, normal storage, Ripening Chamber and Individual Quick Freezing (IQF) etc.
b.          Mobile pre-cooling vans and reefer trucks.
c.          Distribution hubs with multi product and multi CA/MA chambers cold storage/Variable Humidity Chambers, Packing facility, grading and sorting facility, CIP Fog treatment, Ripening Chambers, IQF and Blast Freezing etc.
d.         Irradiation facility.

            To avail financial assistance under this scheme, any two of the components, from above will have to be set-up by the units. Considering the functional nature of the facility, irradiation facility will be treated as a standalone project for the purpose of availing grant.
The other Government agencies like National Horticulture Board (NHB), National Cooperative Development Corporation (NCDC) under Ministry of Agriculture and Agricultural and Processed Food Products Export Development Authority (APEDA) under the Ministry of Commerce and Industry, Department of Commerce also provide financial assistance for setting up cold storages under their respective schemes.


This information was given by the Minister of State for Food Processing Industries, Smt. Sadhvi Niranjan Jyoti in a written reply to a question in Lok Sabha here today.


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36,871 Registered Food Processing Units in India 

As per Annual Survey of Industries data (2011-12)
the total number of registered Food Processing Units
 in various States was 36,871. State-wise distribution

of these Units, is given below.

S. No.
Name of the State
No. of FP Units
1
Andhra Pradesh
9,359
2
Andaman & Nicobar Islands
4
3
Assam
1,212
4
Bihar
715
5
Chandigarh (U.T.)
23
6
Chhattisgarh
1,028
7
Dadra & Nagar Haveli
8
8
Daman & Diu
35
9
Delhi
145
10
Goa
85
11
Gujarat
1,924
12
Haryana
650
13
Himachal Pradesh
171
14
Jammu & Kashmir
150
15
Jharkhand
169
16
Karnataka
1,979
17
Kerala
1,437
18
Madhya Pradesh
754
19
Maharashtra
3,113
20
Manipur
18
21
Meghalaya
18
22
Nagaland
12
23
0disha
875
24
Pudducherry
70
25
Punjab
2,784
26
Rajasthan
777
27
Sikkim
18
28
Tamil Nadu
5,186
29
Tripura
55
30
Uttar Pradesh
2,116
31
Uttarakhand
381
32
West Bengal
1,600
TOTAL
36,871
Source: Annual Survey of Industries (ASI).

This information was given by the Minister of State
 for Food Processing Industries, Smt. Sadhvi Niranjan Jyoti
in a written reply to a question in Lok Sabha here today

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Special Fund of Rs. 2,000 Crore has been Created in Nabard for Providing Affordable Credit to Entrepreneurs 

Recognising the importance of easy access of credit, in the budget of 2014-15, a special fund of Rs. 2,000 crore has been created in National Bank for Agriculture and Rural Development (NABARD) for providing affordable credit to entrepreneurs for setting up of food processing units in designated Food Parks. 

Loan is extended by NABARD from the Fund to various categories of promoters in food processing sector, such as Individual entrepreneurs, State Governments, State Government Agencies, cooperatives, Farmers Producer Organizations (FPOs), corporate, companies etc. 

As per Scheme guidelines the loan can be availed for setting up of individual food processing units and also modernization of existing units in the designated food parks etc. 

The loan is repayable within a maximum period of 7 years, including the initial gestation of a maximum of 2 years. The operational guidelines of NABARD Scheme are available on website of the NABARD – www.nabard.org. 

This information was given by the Minister of State for Food Processing Industries, Smt. Sadhvi Niranjan Jyoti in a written reply to a question in Lok Sabha here today. 

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Vision Document 2015 to Promote Food Processing Industries 

In order to promote food processing industries, increase level of processing and exploit the potential of domestic and international market for processed food products, Vision Document 2015 was prepared by the Ministry of Food Processing Industries, which envisaged trebling the size of investment in the processed food sector by increasing the level of processing of perishables from 6% to 20%, value addition from 20% to 35% and share in global food trade from 1.5% to 3% by 2015. To achieve these targets, an investment of Rs. 100,000 crore was required by the year 2015. Out of which, the share of Government was Rs.10,000 crore. 

This information was given by the Minister of State for Food Processing Industries, Smt. Sadhvi Niranjan Jyoti in a written reply to a question in Lok Sabha here today. 


14th Finance Commission (FFC) Report Tabled in Parliament 14th Finance Commission (FFC) Report Tabled in Parliament Reviewed by Ajit Kumar on 10:18 PM Rating: 5

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