State share must rise in Centre tax receipts: Kelkar

Currently,states get 30.5 per cent of the gross tax receipts. The increased share in tax resources will reflect in the budget for next fiscal.

The officials said that the Finance Ministry would study the recommendations of the Commission and present an action taken report to the Cabinet before the expenditure budget for the next financial year is finalised. The report itself is likely to be tabled in Parliament along with the Economic Survey for 2009-10 a day before the Budget is presented by Finance Minister Pranab Mukherjee. The Commission’s recommendations will be valid for five years beginning April 1,2010.

Besides higher devolution — and increased resources — of up to Rs 50,000 crore towards larger forest cover and more financial autonomy to urban local bodies,Kelkar has recommended a more pragmatic approach to fiscal consolidation. He has called for doing away with the present framework that requires pre-specified cuts in fiscal and revenue deficits as a percentage of GDP every year.

The Fiscal Responsibility and Budget Management (FRBM) Act requires the Centre to pare its fiscal deficit by 0.3 per cent of the GDP and the revenue deficit by 0.5 per cent of the GDP every year. As per the Act,the fiscal deficit was to be trimmed to 3 per cent of the GDP and the revenue deficit eliminated by 2008-09. But a host of factors,including the stimulus following the global slowdown,farm-loans waiver and Sixth Pay Commission awards resulted in deficit targets going awry. The fiscal deficit for 2008-09 stood at 6.2 per cent of the GDP,more than double the target.

The Commission has recommended that the government must strive to achieve the deficit targets at the end of the terminal year,now set at 2014-15. A cyclical approach to cutting deficits will be more practical,it has said. This means the government must aim for higher reductions in years when the economy posts robust growth and revenues are buoyant.

But,even as it does so,Kelkar has suggested that the government put a stop to ‘below the line’ budgeting. Significant liabilities on account of oil,food and fertiliser bonds are currently below the line,and fiscal and revenue deficits are understated to that extent. Kelkar has said the government must provide for these liabilities in the expenditure Budget itself as cash,instead of issuing bonds that only postpone the burden to the next generation.