NEW DELHI: Finance panel The 15th Finance Commission, which tabled its interim report for financial year 2020-21 on Saturday, has tweaked the criteria under which funds are allocated to states, assigning 15 per cent weight to population of a state, down from 17.5 per cent allocated by the previous commission, which will benefit southern and eastern states. The commission has also raised the weight under demographic performance to 12.5 per cent from 10 per cent allocated earlier.
It has kept the share of states in the divisible pool of Central taxes by one percentage point to 41 per cent, allocating 1 per cent to new Union Territories of Jammu and Kashmir and Ladakh for FY21, thus retaining the earlier devolution formula of 42 per cent. The transfers from the Centre to states and UTs was hiked to Rs 7.22 lakh crore in FY21 from Rs 5.96 lakh crore, given the higher GST compensation required. “Considering the sluggish trend in tax collection, the requirement for GST collection will be high and reduction in schematic transfers will constrain the state budget, especially in the year of revenue strain,” it said.
The commission has deferred taking a call on the defence and internal security fund proposed by the Centre. It plans to set up an expert group consisting of representatives from various ministries to work out the modalities. “There is merit in ensuring a predictable and stable flow of funds for defence and internal security. This will receive appropriate consideration in our final report,” it said.