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 Explanatory
Memorandum as to the action taken on the recommendations
of the Sixth Finance Commission in its Report dated the 28th
October, 1973
The Report of the Sixth Finance Commission
is being laid on the Table of the House. A summary of the
main recommendations in the Report relating to devolution
of taxes and duties and grants-in-aid and changes in the terms
of repayment of Central loans outstanding against the States
is summarised in Chapter _ XVIII of its report.
The recommendations of the Commission relating
to sharing of income tax, union excise duties (including auxiliary
duties in the three years 1976-77 to 1978-79), additional
excise duties in lieu of States' sales tax, and Estate Duty,
and to the payment of grants in lieu of the repealed tax on
Railway fares and on account of Wealth Tax on agricultural
property have been accepted.
The Commission has recommended the payment
of grants-in-aid of the revenues of certain States under article
275(1) of the constitution aggregating Rs. 2509.61 crores
during the five year period commencing from 1974-75, after
taking into account the needs of backward States for improvement
of standards of essential administrative and social services.
This recommendation of the Commission has been accepted. In
computing the grants-in-aid of the order of Rs. 2509.61 crores
the Commission has not taken into account the net interest
liability of the States on account of fresh borrowings and
lendings during the Fifth Plan Period. The Commission has
recommended that the net interest liability on this account
should be computed and the grants-in-aid suitably modified.
Necessary action on this will be taken in due course.
The Commission has not favoured the establishment
of a National Fund for financing the relief expenditure of
the States affected by natural calamities. Instead it has
made detailed suggestions in this regard and these will be
examined in consultation with the Planning Commission.
The Commission was also required to make
an assessment of the non-Plan capital gaps of States on uniform
and comparable basis for the five years ending 1978-79 and
in the light of its assessment recommend changes in the existing
terms of repayment of Central loans outstanding at the end
of 1973-74. In the light of the assessment made by the Commission
it has recommended debt relief to the States of the order
of Rs. 1969.62 crores for the five year period ending 1978-79,
as detailed in the summary appended.
The Commission's recommendations fall into
three categories (i) those to be implemented by an Order of
the President, (ii) those to be implemented by law of Parliament,
and (iii) those to be implemented by executive orders. The
recommendations under article 270 (relating to income tax)
and 275(1) (relating to grants-in-aid) of the Constitution
fall in the first category and the necessary Order will be
submitted to the President for approval. Recommendations relating
to distribution of Union Duties of Excise, additional duties
and estate on property other than agricultural land fall in
the second category. Necessary legislation will be promoted
to implement them. The recommendations relating to distribution
of grants to State in lieu of the repealed tax on Railway
Fares and grant on account of Wealth Tax on agricultural property
and also changes in terms of repayment of Central loans will
be implemented by executive orders.
The Commission has made certain general suggestions
in the above Report. These do not require any immediate decision
and will be considered in due course.
Sd/-
(M.G. Kaul)
Secretary to the Government of India
New Delhi.
December 11, 1973.
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