distribution of grants to states

14th Finance Commission Red "Regarding grants-in-aid the report states the following:

- ""A total revenue deficit grant of Rs. 194821 crore is recommended during the award period for 11 states"".

- ""There is a case for transfer from union government to states to augment expenditure in specific sectors...however, past experience shows that achieving this through the mechanism of FC grants may not be appropriate.""

- Its recommends use of the increased fiscal space to meet high base expenditures for police & general administration.

- it is desisted from recommending specific purpose grants for public services and has suggested separate institutional arrangement for this purpose.

However, the commission also recommends distribution of grants to states in two parts (basic &performance).

These statements seem contradictory as on one hand only revenue deficit grant is proposed to be allotted (only to 11 states), while on the other hand it is also recommending basic & performance grants based on criteria of population and area size of the state.

The commission ensures the states with resources such as EEZ or minerals etc..get appropriate share from the royalty/ taxes collected by central govt.. Hence more grant to those 11 states..j&k, himachal Pradesh, etc got this mostly.. There always is a balancing act..in a federal structure..like ours. If we go by performance some states may be deprived of the funds to ensure proper governance..

The union wants to use both performance on fiscal deficit as well as traditional way of control in disbursing the funds. But many times mere controls on FD does not yield results as it based on the states active participation in bringing down many politest policies. Hence not inclined to do so. How ever I order to get all the states in nation building the union govt uses such mixed criteria.

So sir can we say that fc is recommending revenue deficit grant and basic and performance grants to urban local bodies in place of otherwise grants-in-aid.

you are right