SUMMARY OF RECOMMENDATIONS
16.1 Our important recommendations to the President are set out below.
Income Tax
16.2 We recommend that for each financial year in the period 1995-96 to 1999-2000:
(a) Out of the net distributable proceeds of income tax, a sum equal to 0.927 per cent shall be deemed to represent the proceeds attributable to Union Territories.
(b) The share of the net proceeds of income tax assigned to the States shall be 77.5 per cent.
(c) The distribution among States of the share assigned to them in each financial year should be on the basis of the percentages shown in the Table below:
Income Tax : Shares of States 1995 - 2000
State Per cent
Andhra Pradesh 8.465
Arunachal Pradesh 0.170
Assam 2.784
Bihar 12.861
Goa 0.180
Gujarat 4.046
Haryana 1.238
Himachal Pradesh 0.704
Jammu & Kashmir 1.097
Karnataka 5.339
Kerala 3.875
Madhya Pradesh 8.290
Maharashtra 6.126
Manipur 0.282
Meghalaya 0.283
Mizoram 0.149
Nagaland 0.181
Orissa 4.495
Punjab 1.461
Rajasthan 5.551
Sikkim 0.126
Tamil Nadu 6.637
Tripura 0.378
Uttar Pradesh 17.811
West Bengal 7.471
TOTAL 100.000
(Para 5.47)
Union Excise Duties:
16.3 We recommend that 40 per cent of the net proceeds of Union excise duties during each financial year in the period 1995- 96 to 1999-2000 should be distributed as per the shares in the Table below:
40 per cent of the net proceeds of Union Excise Duties:
Shares of States 1995 - 2000
State Per cent
Andhra 8.465
Arunachal Pradesh 0.170
Assam 2.784
Bihar 12.861
Goa 0.180
Gujarat 4.046
Haryana 1.238
Himachal Pradesh 0.704
Jammu & Kashmir 1.097
Karnataka 5.339
Kerala 3.875
Madhya Pradesh 8.290
Maharashtra 6.126
Manipur 0.282
Meghalaya 0.283
Mizoram 0.149
Nagaland 0.181
Orissa 4.495
Punjab 1.461
Rajasthan 5.551
Sikkim 0.126
Tamil Nadu 6.637
Tripura 0.378
Uttar Pradesh 17.811
West Bengal 7.471
TOTAL 100.000
(Para 5,48)
16.4 We also recommend that the remaining 7.5 per cent of the net proceeds of Union excise duties be distributed among the States in accordance with the shares specified by us for each financial year in the period 1995-96 to 1999-2000 as given in the Table below.
Shares of States in 7.5 per cent of the net proceeds of Union Excise Duties
(per cent)
State 1995-96 1996-97 1997-98 1998-99 1999-2000
(1) (2) (3) (4) (5) (6)
Andhra Pradesh 12.069 7.988 0.000 0.000 0.000
Arunachal Pradesh 3.410 4.300 5.871 6.224 6.667
Assam 8.543 9.836 11.849 10.748 9.290
Bihar 6.434 2.965 0.000 0.000 0.000
Goa 0.973 1.058 1.161 0.917 0.604
Himachal Pradesh 8.816 10.744 14.057 14.230 14.338
Jammu & Kashmir 13.366 16.491 21.985 22.741 23.700
Manipur 3.930 4.891 6.602 6.917 7.348
Meghalaya 3.590 4.403 5.815 5.994 6.130
Mizoram 3.676 4.628 6.278 6.784 7.074
Nagaland 5.818 7.417 10.247 11.072 12.025
Orissa 4.815 5.248 4.934 2.773 0.680
Rajasthan 0.835 0.000 0.000 0.000 0.000
Sikkim 1.199 1.473 1.938 1.982 2.055
Tripura 5.465 6.807 9.263 9.618 10.089
Uttar Pradesh 17.061 11.751 0.000 0.000 0.000
TOTAL 100.000 100.000 100.000 100.000 100.00
(Para 5.49)
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Devolution: An Alternative Scheme
16.5 Having regard to the share of States in income tax, Union excise duties, and grant-in-lieu of tax on railway passenger fare in total central tax revenues (including additional excise duties), and the fact that we are recommending inclusion of some taxes under article 269 in the central pool, we recommend that the share of States in the gross receipts of central taxes shall be 26 percent. We further recommend that the tax rental arrangement should be terminated, and additional excise duties merged with basic excise duties. These three commodities should not be subject to States sales tax. Having done so we recommend a further share of three per cent in the gross tax receipts of the Centre for the States in lieu of additional excise duties. These shares of twenty six and three per cent respectively should be suitably provided for in the Constitution and reviewed once in 15 years. (Para 13.14)
16.6 We believe there is some advantage in retaining a system such as in article 268, where a tax is levied by the Union Government but collected and retained by the States, in the interest of uniformity of rates. Because Central sales tax, already being levied, and consignment tax, if and when levied, are similar to the taxes under article 268, we have decided to keep them out of the pool of central taxes. All other taxes in article 269 shall form part of the central pool. (Para 13.17)
16.7 The Centre should continue to have the power to levy surcharges for the purposes of the Union and these should be excluded from the sharing arrangements with the States. (Para 13.19)
16.8 We would recommend that the alternative scheme of resource sharing suggested by us may be brought into force with effect from 1st April, 1996 after necessary amendments to the Constitution. This should not affect the inter-se shares and grants recommended by us. (Para 13.20)
Additional Duties of Excise
16.9 The share of Union territories amounting to 2.203 per cent should be retained by the Central Government. We recommend that the balance should be distributed among the States as shown in the Table below.
State Percentage share
Andhra Pradesh 7.820
Arunachal Pradesh 0.104
Assam 2.483
Bihar 7.944
Goa 0.232
Gujarat 5.995
Haryana 2.366
Himachal Pradesh 0.595
Jammu & Kashmir 0.856
Karnataka 5.744
Kerala 3.740
Madhya Pradesh 7.236
Maharashtra 12.027
Manipur 0.197
Meghalaya 0.188
Mizoram 0.079
Nagaland 0.137
Orissa 3.345
Punjab 3.422
Rajasthan 4.873
Sikkim 0.053
Tamilnadu 7.669
Tripura 0.286
Uttar Pradesh 14.573
West Bengal 8.036
TOTAL 100.000
(Para 6.19) Grants-in-lieu of tax on Railway Passenger Fares
16.10 We recommend that:
i) The quantum of the grant in lieu of the Railway Passenger Fares Tax for 1995-2000 should be Rs. 380 crores annually.
ii) The shares of States in the grant would be as in the Table below:
State Percentage share
Andhra Pradesh 8.345
Arunachal Pradesh 0.005
Assam 1.368
Bihar 9.326
Goa 0.194
Gujarat 6.901
Haryana 1.917
Himachal Pradesh 0.108
Jammu & Kashmir 0.728
Karnataka 3.388
Kerala 3.495
Madhya Pradesh 6.882
Maharashtra 17.548
Manipur 0.018
Meghalaya 0.034
Mizoram 0.001
Nagaland 0.145
Orissa 1.715
Punjab 3.280
Rajasthan 4.445
Sikkim 0.010
Tamil Nadu 6.458
Tripura 0.039
Uttar Pradesh 15.568
West Bengal 8.082
Total 100.000
(Para 7.12) Upgradation Grants
16.11 We recommend a total sum of Rs 2,608.50 crores as grants for upgradation and special problems for the period 1995-2000. (Para 8.15)
Financing of Relief Expenditure
16.12 The amount worked out for all the States for the period of our Report is Rs.6304.27 crores. Out of this, the Centre will be required to contribute Rs.4728.19 crores ( 75 per cent) and the States Rs.1576.08 crores (25 per cent). We recommend the continuation of the current scheme of the Calamity Relief Fund with modifications suggested by us. (Para 9.15)
16.13 We propose that in addition to the Calamity Relief Funds for States, a National Fund for Calamity Relief should be
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created to which the Centre and the States will contribute and which will be managed by a National Calamity Relief Committee on which both the Centre and the States would be represented.
(Para 9.18)
16.14 The size of the National Fund for Calamity Relief would be Rs.700 crores, to be built up over the period 1995-2000, with an initial corpus of Rs.200 crores to which the Centre would contribute Rs.150 crores and the States Rs.50 crores in the proportion of 75:25. In addition, for each of the five years from 1995-96 to 1999-2000 the contributions of the Centre and the States would be Rs.75 crores and Rs.25 crores respectively. The contribution by both the Centre and the States would be made annually in the beginning of the financial year. Contribution of States inter-se would be in the same proportion as their estimated total tax receipts after devolution.
Grants for Local Bodies:
16.15 A total grant of Rs 5,380.93 crores should be made available to the States in four equal instalments commencing from 1996-97. (Para 10.20)
Grants-in-Aid
16.16 We recommend grants-in-aid, to be given to the States under the substantive portion of Article 275(1), equal to the amount of the deficits as estimated for each of the years during 1995-96 to 1999-2000. These amounts have been specified in the Table below:
1995-96 1996-97 1997-98 1998-99 1999-00 1995-2000
Andhra Pradesh 483.47 202.98 0.00 0.00 0.00 686.45
Arunachal Pradesh 136.60 109.26 45.63 16.11 0.00 307.60
Assam 342.20 249.94 92.08 27.81 0.00 712.03
Bihar 257.72 75.34 0.00 0.00 0.00 333.06
Goa 38.98 26.88 9.03 2.37 0.00 77.26
Himachal Pradesh 353.11 273.00 109.25 36.82 0.00 772.18
Jammu and Kashmir 535.39 419.05 170.85 58.84 0.00 1184.13
Manipur 157.43 124.28 51.31 17.90 0.00 350.92
Meghalaya 143.83 111.89 45.19 15.51 0.00 316.42
Mizoram 147.25 117.60 48.79 17.55 0.00 331.19
Nagaland 233.04 188.46 79.63 28.65 0.00 529.78
Orissa 192.87 133.35 38.34 7.18 0.00 371.74
Rajasthan 33.45 0.00 0.00 0.00 0.00 33.45
Sikkim 48.05 37.45 15.06 5.13 0.00 105.69
Tripura 218.92 172.98 71.99 24.89 0.00 488.78
Uttar Pradesh 683.40 298.60 0.00 0.00 0.00 982.00
Total 4005.71 2541.06 777.15 258.76 0.00 7582.68
16.17 We recommend that in case the actual realisation of the concerned States from royalty is higher than that assumed in our estimates, it would be open to the Central Government to make suitable adjustments in the grants-in-aid under Article 275 recommended by us for meeting their non-plan revenue deficits. (Para 3.22)
Debt Relief
16.18 We have recommend a scheme for debt relief in two parts :
i) a scheme for general debt relief for all States linked to fiscal performance; and
ii) specific relief for States with high fiscal stress, special category States and States with debt problems warranting special attention. (Para 12.36)
16.19 In addition we recommend a scheme for encouraging retirement of debt from the proceeds of disinvestment of equity holdings of State Governments. (Para 3.20)
16.20 We recommend specific relief for all special category States, and three other States, viz. Orissa, Bihar and Uttar Pradesh, which are characterised by high fiscal stress. For these States we recommend writing-off of 5 per cent of repayment due with respect to fresh central loans given during 1989-95 and outstanding on 31st March, 1995. (Para 12.39)
16.21 We recommend the waiver of one third of the repayment of principal falling due during 1995-2000 on special term loans to Punjab in view of the special circumstances when these term loans were advanced and the need for the State to re- invigorate its development efforts. (Para 12.40)
Monitoring of Maintenance Expenditure
16.22 We recommend that the presentation of accounts should be redesigned in such a way that the expenditure on the works component and the establishment expenses get reflected separately and are easily accessible. We recommend that the Ministry of Finance, in consultation with the State Governments and with the concurrence of the Comptroller and Auditor General of India, should introduce appropriate changes in the accounting and reporting system in accordance with the scheme outlined by us. Para 3.62)
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16.23 We also recommend that the State Governments should ensure that the provisions for maintenance are made in accordance with our recommendations. We further recommend that a high powered committee chaired by the Chief Secretary and with secretaries of the State Governments concerned in the departments of Finance, Planning, Irrigation and Public Works and the concerned chief engineers of the works departments should review every quarter the allocation and utilisation of funds provided for maintenance.