The recommendations contained in the Interim
Report have been accepted."
5. The recovery of small
savings loans given to State Governments which was held
in abeyance during the period 1979-80 to 1983-84 may be
deferred during the financial year 1984-85 also.
6. In its present assessment
the Commission has not made provision for expenditure on
fresh proposals for upgradation of standards of administration
and improvements, if any, needed for the maintenance and
up-keep of capital assets and these will be made in the
final report.
7. The recommendations
contained in the Interim Report are provisional and of interim
nature and would be subject to such re-adjustments as may
be necessary on the basis of the final report.
Explanatory Memorandum as to the
action taken on the recommendations made by the Eighth Finance
Commission in its Report submitted to the President on 30th
April, 1984
1. The Report of the Eighth
Finance Commission covering a period of five years commencing
from 1st day of April, 1984 together with the explanatory
memorandum as to the action taken on the recommendations
of the Commission is being laid on the Table of the House,
in pursuance of Article 281 of the Constitution. A summary
of the Commission's main recommendations relating to devolution
of taxes and duties to the States, grants-in-aid under Article
275 of the Constitution, financing of relief expenditure
and debt relief to the States and other matters, is summarised
in Chapter XVII of its Report.
2. As required by its
terms of reference, the Commission's recommendations cover
the five year period commencing from 1st day of April, 1984.
The Commission was requested to submit its report to the
President by 31st October, 1983 so that sufficient time
would be available to consider its recommendations before
framing the Budgets and Annual Plans of the Central and
State Governments for 1984-85. However, at the request of
the Commission, its term was extended upto 29th February,
1984 (by notification dated 29th October, 1983) and further
to 30th April, 1984 (by notification dated 29th February,
1984). The Report of the Commission was submitted to the
President on 30th April, 1984 by which time the Budgets
and Annual Plans for 1984-85 of the Central and most State
Governments had already been finalised.
3. In view of the delay
in the submission of the Report, the Commission submitted
on 14th November, 1983 an Interim Report covering the year
1984-85, so that the recommendations contained in this Interim
Report could be considered prior to the presentation of
the budgets for 1984-85. The recommendations made by the
Commission were accepted by the government and a memorandum
on the action taken was laid on the Table of the House on
9th December, 1983. The budget of the Central Government
for the current year, as approved by Parliament, reflects
the impact of these decisions.
4. As almost four months
of the current year are over and the budgets and Annual
Plans for this year are already in operation, it will cause
undue disruption in the economy, if the budgets and plans
for the remaining part of the current year were to be changed
now. In particular, any change in the formula for devolution
of Central taxes and duties in mid year is not considered
feasible as it would involve reduction or increase in shares
of different States. Taking these considerations into account,
the Government have decided to continue with the recommendations
of the Finance Commission contained in the Interim Report
for the current financial year. The following decisions
taken on the Final Report of the Commission and their implementation,
therefore, relate to the period 1985-86 to 1988-89.
A SHARES OF CENTRAL TAXES AND DUTIES
5. For the period of four
years commencing from the 1st day of April, 1985, recommendations
contained in the final report of the Finance Commission
relating to sharing of Income tax, Union duties of excise,
additional excise in lieu of State sales tax, estate duty
on property other than agricultural land and grant on account
of wealth tax on agricultural property have been accepted.
In regard to the recommendation of the Commission for enhancing
the grant in lieu of repealed tax on railway passenger fares,
the recommendation is acceptable to Government but will
need to be referred to the Railway Convention Committee.
The Government have also accepted the recommendations of
the Finance Commission in regard to inter-se distribution
of the grant among the States.
6. It may be noted that
the Commission has recommended that 5 per cent of the net
proceeds of Union duties of excise (excluding that on electricity)
should be set aside and distributed to those States which
have deficit after taking into account their shares from
the devolution of taxes and duties as proposed by it. This
introduces a new principle of directly linking devolution
to deficit rather than dealing with them only through grants-in-aid
under Article 275. While recognising that there could be
different views on the merits of this principle, Government
have decided to accept this recommendation of the Commission
in the Report but without creating a precedent.
B GRANTS-IN-AID OF THE REVENUES
OF STATES UNDER THE SUBSTANTIVE PROVISION OF ARTICLE 275
OF THE CONSTITUTION
7. (i) Grants-in-aid to
cover non-plan gap on revenue account:- For the four years
commencing from 1st day of April, 1985, the Government have
accepted the recommendations contained in the Final Report
of the Commission for payment of grants-in-aid of the revenues
of certain States under the substantive provision of Article
275(1) of the Constitution towards meeting their non-plan
revenue gap as assessed by the Commission.
(ii) The Commission has not computed the
net interest liabilities of the States arising out of the
fresh borrowings during the period 1984-89. The Commission
has recommended that the Central Government from year to
year should compute in relation to each of the four years
(1985-89), the net interest liability of the States arising
out of the fresh borrowings and that, thereupon, the President
should be moved to increase, to the extent required, the
amounts of the grants-in-aid recommended by the Commission
for the deficit States and in the case of other States,
the net interest liability so computed should be set off
against the surplus as assessed by the Commission. The Government
have accepted this recommendation.
iii) The Commission has not computed the
additional burden from 1985-86 arising out of the committed
expenditure in respect of plan schemes completed in 1984-85.
The Commission has recommended that the Government may compute
the requirements of the deficit States on this account taking
into consideration the yield from additional resource mobilisation
measures of 1984-85, and move the President to increase,
to the extent required, the amounts of the grants-in-aid.
The Government have accepted this recommendation also.
(iv) Grants-in-aid for upgradation of standards
of administration, special problems and for financing of
relief expenditure:- The Government have accepted the recommendations
of the Commission for making grants-in-aid to certain States
for upgradation of standards of administration and special
problems for the four years commencing from 1st day of April,
1985, subject to the implementation and monitoring of the
schemes in the manner indicated by the Commission in Chapter
XII of its Report. The Government have also accepted the
recommendations of the Commission that the Centre should
contribute annually as grants-in-aid equal to half of the
margin money computed by the Commission for financing of
relief expenditure.
C RECOMMENDATIONS ON OTHER TERMS
OF REFERENCE
8. (i) Financing of Relief
Expenditure:- In addition to the grants-in-aid to the margin
money of States for financing of relief expenditure, the
Government have accepted the modifications recommended by
the Commission to the existing arrangements for financing
of relief expenditure.
(ii) Debt Relief:- The Government have
accepted the recommendations of the Commission in regard
to debt relief for the four years commencing from 1st day
of April, 1985.
D NOTES OF DISSENT
9. The Report of the Commission
has appended to it three Notes of Dissent on certain recommendations.
The Government have carefully considered these notes and
decided to accept generally the recommendations of the majority.
E IMPLEMENTATION
10. The Commission's recommendations
fall in three categories:
(i) Those to be implemented by the Order
of the President;
(ii) Those to be implemented by law of
Parliament;
(iii) Those to be implemented by executive
order.
The recommendations under Article 270 and
275(1) of the Constitution relating to income tax and grants-in-aid
respectively fall in the first category and the necessary
order will be submitted to the President for approval. Recommendations
relating to distribution of Union excise duties and estate
duty on property other than agricultural land fall in the
second category. Necessary ligislation will be promoted
for implementing them. The recommendations relating to distribution
of grant to States in lieu of tax on railway passenger fares
and grant on account of wealth tax on agricultural property
and also changes in terms of repayment of the Central loans
will be implemented by executive orders.
11. The recommendations
relating to the enhancement in the grant given in lieu of
repealed tax on railway passenger fares will be referred
to the Railway Convention Committee and implemented if accepted
by them.
12. The Commission has
made certain other recommendations in the Report. These
do not require any immediate action and will be considered
in due course.
Sd/-
(Pranab Mukherjee)
Finance Minister
New Delhi.
July 24, 1984.
Click
Here for Report
Explanatory
Memorandum on the action taken on the recommendations of the
Eighth Finance Commission in its Interim Report dated the
14th November, 1983