Revenue Deficit grants for states

Background

• The Post Devolution Revenue Deficit Grant is provided to the States under Article 275 of the Constitution.
• The grants are being released as per the recommendations of the Fifteenth Finance Commission in monthly instalments to meet the gap in the Revenue Accounts of the States post-devolution.
• The Commission has recommended these grants to 17 States during 2021-22.
• The eligibility of States to receive this grant and the quantum of the grant was decided by the Commission based on the gap between the assessment of revenue and expenditure of the State after taking into account the assessed devolution for the financial year 2021-22.
• The Fifteenth Finance Commission has recommended a total Post Devolution Revenue Deficit Grant of Rs. 1,18,452 crore to 17 States in the financial year 2021-22. Out of this, an amount of Rs. 59,226.00 crores (50%) has been released so far.
• The States recommended for PDRD Grant by the Fifteenth Finance Commission are Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Karnataka, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand and West Bengal.

Recommendations made by the Fifteenth Finance Commission

Revenue deficit grants

• As per FFC estimates, 25 of the 28 states face a total pre-tax devolution revenue deficit of Rs.6.43 trillion in 2020-21.
• After accounting for the projected tax devolution to the states of Rs.8.55 trillion, 14 states garner a post-tax devolution revenue surplus of Rs.3.08 trillion, while the remaining 14 face a combined post-tax devolution revenue deficit of Rs.74,340 crore. These states have been compensated by the FFC.
• The largest beneficiaries of the recommendation are Kerala ( Rs.15,323 crore), Himachal Pradesh ( Rs.11,431 crore), Punjab ( Rs.7,659 crore), Assam ( Rs.7,579 crore), Andhra Pradesh ( Rs.5,897 crore), Uttarakhand ( Rs.5,076 crore) and West Bengal ( Rs.5,013 crore).

Weightage of population and demographic performance

• Since the FFC used 2011 Census data, the tax share of most southern states with low population growth rates, such as Andhra Pradesh, Kerala and Karnataka, has come down, while the share of Bihar, Madhya Pradesh, Punjab, Maharashtra and Gujarat has gone up.
• The FFC assigned 15% weight to the population of a state, down from the 17.5% allocated by the 14th Finance Commission while raising the weight under demographic performance from 10% to 12.5%.

Special grants & nutrition grants

• The finance ministry has also asked the FFC to review its recommendations on special grants and nutrition grants to the states.
• The commission had recommended special grants of Rs.6,764 crore for 2020-21 to ensure that no state receives less than what it received in FY20 on account of tax devolution and revenue deficit grants.
• However, the Union finance ministry has requested the FFC to reconsider the recommendation, holding that “it introduces a new principle". The beneficiaries of the proposal were Karnataka, Mizoram and Telangana.