Economic Survey: NITI Aayog, 14th Fin Com will boost fiscal federalism

The recommendations of the 14th Finance Commission and the creation of NITI Aayog will enhance fiscal federalism, says the Economic Survey for 2014-15.

"The renewed impulse towards fiscal federalism need not be detrimental to the Centre's fiscal capacity, the far-reaching recommendations of the FFC, along with creation of the NITI Aayog, will further the government's vision of cooperative and competitive federalism," the Survey said.

The 14th Finance Commission, headed by former RBI governor Y V Reddy, had made recommendations for far-reaching changes in tax devolution that will move the country towards greater fiscal federalism, conferring more fiscal autonomy to the states, it said.

This will be enhanced by the FFC-induced imperative of having the scale of other central transfer of the states, it added. The Commission had recommended an increase in states' share in central taxes to 42 percent.

The Centre has accepted the recommendations and will give states an additional Rs 1.78 lakh crore in 2015-16.

It had also recommended a grants-in-aid of Rs 48,906 crore for 11 revenue deficit states, including Andhra Pradesh post division, West Bengal and Jammu and Kashmir, for 2015-16. For the period up to 2020, it will be over Rs 1.94 lakh crore.

Finance Minister Arun Jaitley had recently said that the Centre has accepted the recommendations of the Finance Commission and it shows NDA government's commitment to cooperative federalism.

Jaitley had also said that the increase in states' share is "the largest ever change in percentage of devolution. In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2 percent."

The Commission had also suggested a fiscal deficit target of 3.6 percent for 2015-16 and 3 percent in subsequent years.

The government had set up NITI Aayog (National Institution for Transforming India) on January 1 to replace the 65-year-old socialist-era Planning Commission.