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Thursday, October 24, 2013

1. Dr. Y.V. Reddy, Chairman, Prof. Abhijit Sen, Ms. Sushama Nath, Dr. M. Govinda Rao and Dr. Sudipto Mundle, Members of the Fourteenth Finance Commission and Sh. A.N. Jha, Secretary visited the State of Karnataka on October, 23rd and 24th, 2013 to hold consultations with the State Government and key stake holders.

2. The Commission met with the Hon’ble Chief Minister, his Cabinet Colleagues and senior officers of the State Government, for discussions.

3. The Chief Minister Karnataka welcomed the Chairman and Members of the Commission and highlighted the need for realigning the financial resources more in favour of states to achieve the goal of inclusive growth. He requested state-specific flexible fiscal policy and greater formula-based transfer of untied resources to the states.

4. The Hon’ble Chief Minister informed that the state is first to have enacted a Fiscal Responsibility Legislation in 2002 and has generated revenue surplus. It was stated that the state has less than one-third of its cropped area under irrigation and an investment of Rs.50,000/- crore will be required to realize the irrigation potential of the state. The state has kept the administrative costs under control and the subsidy expenditure has been kept at around 15% of the revenue receipts. The ratio of interest payment to revenue receipts has been around 9% which is well below the prescribed limit of 15%.

5. It was suggested to increase the share of state in central taxes from the present level of 32% to 40% and to include in the divisible pool the cess and surcharge which are in existence for more than three years. The state has welcomed the proposed introduction of GST provided the standard rate of GST is not lower than the Revenue Neutral Rate, the revenue losses are compensated and a structured mechanism is put in place for creation of a GST Compensation Fund to protect the interest of the States. It was informed that the 29 functions listed in the 11th schedule have been delegated to the local bodies and the state government is in favour of allocating 5% of the divisible pool to the Panchayati Raj Institutions (PRIs) and 3% to Urban Local Bodies (ULBs).

6. Hon’ble Chief Minister also requested for earmarking of 1% each of the divisible pool to Disaster Relief Fund (DRF) and for maintenance of capital assets. Apart from this, the issue of infrastructure up-gradation grant for the city of Bangalore and suitable resource allocation for Hyderabad-Karnataka region was also raised in the deliberations.

7. The State Government submitted their Memorandum and made a detailed presentation on the finances of the State Government, its projection for the award period and gave their views on some of the Terms of Reference of the Commission. Detailed presentations were also made on Disaster Relief, Requirements of Bangalore and Regional imbalances, particularly Hyderabad-Karnataka Region. The Commission also interacted with representatives of political parties, Panchayati Raj Institutions, Urban local bodies and Trade and Industry Associations.

8. The Commission places on record its appreciation to the Chief Minister and State Government for the cooperation and support extended to the Commission and assures that the issues raised will receive due attention in the deliberation of the Commission. The Commission also looks forward to continuing interaction with the State Government.

9. The Commission will finalize its recommendations by October 2014 after completing its discussions with all the State Governments, the Government of India and relevant stake holders.

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