Post Devolution Revenue Deficit Grant


    In News

    • Recently, the Finance ministry released the fourth instalment of revenue deficit grant of Rs 7,183 crore to 14 states for the current fiscal.

    Key points

    • Total Post Devolution Revenue Deficit Grant: The Fifteenth Finance Commission has recommended a total Post Devolution Revenue Deficit Grant of Rs. 86,201 crore to 14 States for the financial year 2022-23.
    • Department of Expenditure: The recommended grant will be released by the Department of Expenditure to the recommended States in 12 equated monthly instalments.
    • The States which have been recommended Post Devolution Revenue Deficit Grant by the Fifteenth Finance Commission during 2022-23 are: Andhra Pradesh, Assam, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tripura, Uttarakhand and West Bengal.

    About Post Devolution Revenue Deficit Grant

    • Article 275: The Post Devolution Revenue Deficit Grants are provided to the States under Article 275 of the Constitution. 
    • The grants are released to the States as per the recommendations of the successive Finance Commissions to meet the gap in Revenue Accounts of the States post-devolution.
    • 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 2020-21.

    Types of Grants-in-aid in Indian Constitution

    • Statutory Grants:
      • Article 275: makes provisions for statutory grants to needy states.
      • These are charged on the Consolidated Fund of India.
      • Such grants also include specific grants for promoting the welfare of the scheduled tribes in a state or for raising the level of administration of the scheduled areas in a state including the State of Assam.
    • Discretionary Grants
      • Article 282: both centre and states are able to make any grants for public purpose even if they are not within their legislative competence.
      • Since such grants are discretionary, there are no obligations to make such grants.

    What are Grants-in-aid?

    • Grants-in-aid are payments in the nature of the assistance, donations or contributions made by one government to another government, body, institution or individual.
    • Grants-in-aid are given by the Union Government to State Governments and/or Panchayati Raj Institutions.
    • The Union Government also gives substantial funds as grants-in-aid to other agencies, bodies and institutions.
    • Similarly, the State Governments also disburse grants-in-aid to agencies, bodies and institutions such as universities, hospitals, co-operative institutions and others.
    • The grants so released are utilised by these agencies, bodies and institutions for meeting day-to-day operating expenses and for the creation of capital assets, besides delivery of services.

    Centre-State Financial Relations

    • The Indian Constitution has made elaborate provisions, relating to the distribution of the taxes as well as non-tax revenues and the power of borrowing, supplemented by provisions for grants-in-aid by the Union to the States.
    • Article 268 to 293 deals with the provisions of financial relations between Centre and States.
    • The Constitution divides the taxing powers between the Centre and the states as follows:
      • The Parliament has exclusive power to levy taxes on subjects enumerated in the Union List
      • The state legislature has exclusive power to levy taxes on subjects enumerated in the State List
      • Both can levy taxes on the subjects enumerated in Concurrent List whereas residuary power of taxation lies with Parliament only.

    Distribution of the tax-revenue

    • Duties Levied by the Union but Collected and Appropriated by the States: Stamp duties on bills of Exchange, etc., and Excise duties on medical and toilet preparations containing alcohol.
      • These taxes don’t form part of the Consolidated Fund of India but are assigned to that state only.
    • Service Tax is Levied by the Centre but Collected and Appropriated by the Centre and the States.
    • Taxes Levied as Well as Collected by the Union, but Assigned to the States: These include taxes on the sale and purchase of goods in the course of inter-state trade or commerce or the taxes on the consignment of goods in the course of inter-state trade or commerce.
    • Taxes Levied and Collected by the Union and Distributed between Union and the States: Certain taxes shall be levied as well as collected by the Union, but their proceeds shall be divided between the Union and the States in a certain proportion, in order to effect an equitable division of the financial resources.
      • This category includes all taxes referred in Union List except the duties and taxes referred to in Article 268, 268-A and 269; surcharge on taxes and duties mentioned in Article 271 or any Cess levied for specific purposes.
    • Surcharge on certain duties and taxes for purposes of the Union: Parliament may at any time increase any of the duties or taxes referred in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India.

    Effects of Emergency on Centre-State Financial Relations

    • During National Emergency: The President by order can direct that all provisions regarding the division of taxes between Union and States and grants-in-aid remain suspended. However, such suspension shall not go beyond the expiration of the financial year in which the Proclamation ceases to operate.
    • During Financial Emergency: Union can give directions to the States:-
      • To observe such canons of financial propriety as specified in the direction.
      • To reduce the salaries and allowances of all people serving in connection with the affairs of the State, including High Courts judges.
      • To reserve for the consideration of the President all money and financial Bills, after they are passed by the Legislature of the State.

    Way forward

    • Federalism: In India, the Centre-States relations constitute the core elements of federalism.
      • The Central Government and State Government cooperate for the well-being and safety of the citizens of India.
      • The work together in the field of environmental protection, terror control, family control and socio-economic planning.
    • National unity: The Indian constitution aims at reconciling the national unity while giving the power to maintain state to the State governments.
      • It is true that the union has been assigned larger powers than the state governments, but this is a question of degree and not quality, since all the essential features of a federation are present in the Indian constitution.
    • It is often defined to be quasi-federal in nature: Thus, it can be safely said that the Indian Constitution is primarily federal in nature even though it has unique features that enables it to assume unitary features upon the time of need. Federal but its spirit is unitary. 

    Article 275 of the Constitution

    • Article 275 makes provisions for statutory grants to needy states.
    • It provides for the payment of such sums as Parliament may by law provide as grants-in-aid to States.
    • These are charged on the Consolidated Fund of India. Such grants also include specific grants for promoting the welfare of the scheduled tribes in a state or for raising the level of administration of the scheduled areas in a state. 
    • The bases of these grants are recommendations of the finance commission
      • Grants are primarily intended to correct Inter-State disparities in financial resources and to coordinate the maintenance and expansion of the welfare schemes of the State Governments on a uniform national level.

    What is the Revenue Deficit?

    • Revenue deficit arises when the government’s revenue expenditure exceeds the total revenue receipts.
    • It includes those transactions that have a direct impact on a government’s current income and expenditure. 
    • This represents that the government’s own earnings are not sufficient to meet the day-to-day operations of its departments.
    • Revenue deficit turns into borrowings when the government spends more than what it earns and has to resort to external borrowings.

    Source: PIB