The 14th Finance Commission in its report tabled in Parliament has suggested the Centre to restrict the fiscal deficit target of 3.6 percent of GDP in 2015-16 and 3 percent in the subsequent years on the back of likely pick-up in economic growth.
The Commission, headed by former RBI Governor Y V Reddy, further said that 'We expect that an improvement in the macroeconomic conditions and revival of growth as well as tax reforms should enhance the total tax revenues of the Union Government, enabling it to eliminate the revenue deficit completely much earlier than 2019-20.'
As per the Commission, total devolution to the states in FY16 will be Rs 5.26 lakh crore against Rs 3.48 lakh crore in FY15. It also said that fiscal deficit of all the states will be anchored to an annual limit of 3 percent of Gross State Domestic Product (GSDP). Though, the finance commission has subsumed both plan and non-plan expenditure. Moreover, it has not given any sectoral grants, not even for environmental or healthcare.
The report further stated that the share of grants and tax devolution to states in the gross revenue receipts has been projected to increase from 47.5% in 2014-15 (base year, as per the previous finance commission formula) to 49.4% in 2019-20. Meanwhile, the Centre has accepted the recommendations of the finance commission and has implicitly endorsed the fiscal deficit target of 3.6% of GDP for FY16 and 3% thereafter. The revised estimates of fiscal deficit will be unveiled by the Finance Minister in the Budget.
