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 Explanatory
Memorandum as to the action taken on the recommendations made
by the Tenth Finance Commission in its Report submitted to
the President on November 26, 1994.
The Report of the Tenth Finance Commission
covering the five years period commencing from April 1, 1995
together with the Explanatory Memorandum on 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 contained in Chapter XVI of the Report of the Commission.
2. SHARES OF CENTRAL TAXES AND DUTIES
For the period of five years commencing from
April 1, 1995, recommendations contained in the Report of
the Finance Commission relating to sharing of Income tax,
Union Duties of Excise, Additional Excise Duties in lieu of
States' sales tax, have been accepted by Government. The recommendations
of the Commission relating to grants in lieu of the repealed
tax on railway passenger fares have also been accepted by
Government. The recommendation of the Commission that the
receipts on account of `interest recoveries' and `penalties'
under the Income tax Act should be shared with the States
with effect from April 1, 1995, has been accepted by the Government.
3. GRANTS-IN-AID OF THE REVENUES
OF STATES UNDER THE SUBSTANTIVE PROVISIONS OF ARTICLE 275
OF THE CONSTITUTION
(i) Grants-in-aid to cover non-Plan gap on
Revenue Account
The Government has accepted the recommendations
contained in the Report of the Commission for payment of grants-in-aid
of the revenues of certain States under the substantive provisions
of Article 275(1) of the Constitution towards meeting their
non-Plan revenue gap as assessed by the Commission for the
five years 1995-2000.
(ii) Grants-in-aid for upgradation of standards
of administration and specific grants to certain States for
special problems
The Government has accepted the recommendations
of the Commission for making grants-in-aid to States for upgradation
of standards of administration and specific grants to certain
States for special problems for the four years commencing
from April 1, 1996 as recommended by the Commission.
(iii) Grants to States for financing local
bodies
The Government has accepted the recommendations
of the Commission for making grants to the States for Panchayati
Raj Institutions as well as for the Urban Municipal Bodies
during the four years period commencing from April 1, 1996.
These grants will be treated as part of the Plan of the State
Governments, earmarked to be transferred to local bodies.
(iv) Financing of Relief Expenditure
The Government has accepted the recommendations
of the Commission relating to the continuation of the existing
scheme of Calamity relief fund with an enhancement in the
corpus of the Calamity Relief Fund. As recommended by the
Commission, the existing scheme will be modified in consultation
with the States so as to provide flexibility in the choice
of avenues for investment. The Government has also accepted
the recommendations of the Finance Commission in regard to
setting of a Rs. 700 crore National Fund for Calamity Relief
(NFCR). The arrangements for the custody and operation of
the fund will be separately worked out in consultation with
the Comptroller and Auditor General of India and the Reserve
Bank of India.
(v) Debt Relief: The Government has accepted
the recommendations of the Commission in regard to debt relief
including two new schemes of general debt relief for all States,
one linked to the fiscal performance of the States and the
other linked to the utilisation of proceeds of disinvestment
in State Public Enterprises for retiring Central loans.
4. IMPLEMENTATION
The Commission's recommendations fall in
four categories:
(i) Those to be implemented by an Order of
the President.
(ii) Those to be implemented by Law of Parliament.
(iii) Those to be implemented by executive
orders.
(iv) Those to be examined further.
The recommendations under articles 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 including Additional Duties of Excise
in lieu of Sales Tax (under Article 272 of the Constitution)
fall in the second category. Necessary legislation will be
promoted for implementing these recommendations.
The recommendations relating to distribution
of grants to States in lieu of tax on railway passenger fares
and debt relief will be implemented by executive orders.
Other recommendations of the Commission will
be considered in due course.
Sd/-
Manmohan Singh
Minister of Finance
New Delhi
March 14, 1995
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