Sp issue on 16th Fin Commission-wl-5036-Enhanced Devolution and Fiscal Space at the State Level – Is it an Expansion or Contraction?

A significant increase in tax devolution by the Fourteenth Finance Commission (FC-XIV) was expected to provide greater fiscal autonomy to states. To accommodate this increase in tax devolution, the union government restructured the flow of grants to states. This paper examines the fiscal impact of these changes on aggregate resource transfers. It is observed that between 2010-11 and 2022-23 total transfers to states as percent of gross revenue receipts of the union government have remained largely unchanged while the share of unconditional transfers has considerably reduced due to the proliferation of cess and surcharges, discontinuation of certain grants and enhanced matching contribution by states for Centrally Sponsored Schemes.