Lok Sabha Question No. 1049 (UNSTARRED), answered on 2016-04-29
Subject: Financial Position of States
Ministry: FINANCE
Asked by: RAMACHANDRAN MULLAPPALLY

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF EXPENDITURE FINANCE COMMISSION DIVISION

## LOK SABHA UNSTARRED QUESTION NO. 1049

Answered on April 29, 2016/Vaisakha 9, 1938 (Saka)

## Financial Position of States

## 1049. SHRI MULLAPPALLY RAMACHANDRAN

Will the Minister of FINANCE be pleased to state:

- (a) whether the Union Government reviewed the financial position of the States and if so, the details thereof; and
- (b) the  State-wise  details  of  fiscal  deficit  and  measures  proposed  by  the  Union  Government  to improve the financial position of the States?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE (SHRI JAYANT SINHA)

(a)  to  (b):  The  Fourteenth  Finance  Commission  (FFC),  inter-alia,  reviewed  the  state  of finances,  deficit  and  debt  levels  of  the  States  and  observed  that  the  pre-dominant  feature  of  State finances  between  2004-05  and  2014-15  was  the  overall  improvement  in  fiscal  indicators.  The aggregate  fiscal  deficit  (FD)  of  States  as  per  2015-16  (Budget  Estimates)  was  at  2.90%  of  Gross State Domestic Product (GSDP), much within FFC projection of FD/GSDP ratio of 3.25%. Statewise fiscal deficit as a ratio of their GSDP as per 2015-16 (BE) is at Annexure.

As  recommended  by  FFC  for  its  award  period  (2015-20),  the  Union  Government  has approved the fiscal deficit threshold limit of 3 per cent of GSDP for the States. Further the Union Government has also approved year-to-year flexibility for additional fiscal deficit to States for the period 2016-17 to 2019-20. FFC, taking into account the development needs and the current macroeconomic requirement, provided additional headroom to a maximum of 0.5% over and above the normal limit of 3% in any given year to the States subject to the States maintaining the debt-GSDP ratio  within  25%  and  interest  payments-revenue  receipts  ratio  within  10%  in  the  previous  year. However, the flexibility in availing the additional fiscal deficit will be available to State if there is no revenue deficit in the year in which borrowing limits are to be fixed and immediately preceding year.

The FFC has made far-reaching changes in tax devolution that will move the country toward greater fiscal federalism, conferring more fiscal autonomy on the States. As per the recommendation of  FFC,  the  Union  Government  has  decided  to  devolve  biggest  ever  increase  in  vertical  tax devolution/ share of the States in the Central Divisible Pool from 32% to 42% to fill the resource gap of each State to the extent possible. The higher tax devolution will allow States greater autonomy in financing and designing of schemes as per their needs. Besides, Post devolution revenue deficit grant has  been  provided  to  eleven  States  where  devolution  alone  could  not  cover  the  assessed  gap.  In addition, FFC has recommended local body grants (both to rural and urban local bodies) and grants for augmenting the State's Disaster Response Fund (SDRF).

## Annexure referred to in reply to part (a) to (b) of Lok Sabha Unstarred Question No. 1049 for answer on 29/04/2016

## Fiscal Deficit (FD) of States as a ratio of GSDP as per 2015-16 (BE)

(In percent)

| Sl. No.   | State             |   FD/GSDP |
|-----------|-------------------|-----------|
| 1         | Andhra Pradesh    |       3   |
| 2         | Arunachal Pradesh |       2.9 |
| 3         | Assam             |       2.2 |
| 4         | Bihar             |       2.8 |
| 5         | Chhattisgarh      |       2.7 |
| 6         | Goa               |       2.4 |
| 7         | Gujarat           |       2.2 |
| 8         | Haryana           |       3.2 |
| 9         | Himachal Pradesh  |       4.9 |
| 10        | Jammu &Kashmir    |       6.3 |
| 11        | Jharkhand         |       2.4 |
| 12        | Karnataka         |       2.7 |
| 13        | Kerala            |       3.4 |
| 14        | Madhya Pradesh    |       2.8 |
| 15        | Maharashtra       |       3   |
| 16        | Manipur           |       3.2 |
| 17        | Meghalaya         |       2.8 |
| 18        | Mizoram           |       0.8 |
| 19        | Nagaland          |       5   |
| 20        | Orissa            |       3.1 |
| 21        | Punjab            |       3   |
| 22        | Rajasthan         |       3   |
| 23        | Sikkim            |       3   |
| 24        | Tamilnadu         |       2.9 |
| 25        | Telangana         |       3.3 |
| 26        | Tripura           |       5.5 |
| 27        | Uttar Pradesh     |       2.9 |
| 28        | Uttarakhand       |       4.4 |
| 29        | West Bengal       |       1.7 |
|           | All States/GSDP   |       2.9 |