Social Scientist. v 12, no. 135 (Aug 1984) p. 61.


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The Eighth Finance Commission

GIVEN the overall context of Centre-state financial relations in India, the task of the successive Finance Commissions has basically been the determination of the extent to which the heavy tilt towards the Centre can be compensated for by tax devolutions and grants-in-aid to the states. If we take into account the advisory nature of the Commissions' recommendations and the limited room for manoeuvre that they have in the present constitutional distribution of the power to tax, it comes as no surprise that the recommendations of the Finance Commissions arc remarkably alike.

The Eighth Finance Commission, however, has made two recommendations which are out of the ordinary and deserve mention. Firstly, it has recommended that the states5 share in divisible excise duties be raised to 45 per cent (from the 40 per cent recommended by the Seventh Finance Commission), and that the additional 5 per cent be reserved exclusively for the 11 states facing major deficits on current account. This recommendation not only seeks to increase the states' share, but also improves the relative shares of the deficit states. Secondly, it has recommended that the grants-in-aid component of Centre-to-state financial transfers be raised by 5 per cent every financial year. This recommendation implies that a total grants-in-aid of Rs 1690.93 crores will be payable to the states over the period 1984-1989 against a nominal total deficit of Rs 1513.12 crores for the same period. Thus, this recommendation seeks to redress a major grievance of the states that grants-in-aid, unlike tax shares, are fixed amounts without the advantage ofbouyancy or a built-in growth component. It is clear, therefore, that the Eighth Finance Commission has sought to improve the relative position of the deficit states at the expense of the Centre, and for this reason its recommendations must be welcomed.

But against the backdrop of federal finances in India, it is debatable whether these recommendations will make a significant difference in the overall situation of the concentration of financial powers with the Centre. It is, of course, true that "the demands on the



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