The Government has accepted the Fourteenth Finance Commission recommendation to devolve 42% of Union Government’s net taxes to States, as against 32% being followed at present, which was the recommendation of the Thirteenth Finance Commission. The States received Rs 3182 billion in fiscal 2014-15 as its share of Union Government taxes. The States are likely to receive extra Rs 1780 billion in fiscal 2015-16 as per Finance Commission’s forecast taking total States share to Rs 5260 billion.
The higher share of taxes for states has resulted in tax revenues to the center seeing a growth of just 1.3% for fiscal 2015-16 and this has impacted government’s fiscal deficit target. The government had targeted a fiscal deficit of 3.6% of GDP for 2015-16 but given the low tax growth, fiscal deficit is budgeted at 3.9% of GDP.