The centre has released tax devolution of Rs 1.73 lakh crore to the state governments to accelerate capital expenditure and finance welfare activities. This marks a significant rise from the devolution of Rs 89,086 crore in the last month.
“A higher amount is being devolved this month to enable states to accelerate capital spending and finance their development and welfare-related expenditures,” the finance ministry said in a statement.
Tax devolution refers to the distribution of tax revenues between the central government and the state governments.
This month, Uttar Pradesh received the highest amount of Rs 31,039.84 crore, followed by Rs 17,403.36 crore to Bihar and Rs 13017.06 crore to West Bengal.
Meanwhile, Goa and Sikkim received Rs 667.91 crore and Rs 671.35 crore respectively.
Capex Push
It is expected that the Finance Ministry will relax regulations for the interest-free capital expenditure (capex) loans released to the states to utilise capex.
The Union Budget 2024-25 set aside Rs 12.2 trillion as the states' share, an increase of 10.4 per cent in comparison to the amount devolved as per the revised estimates for FY24. This revenue is distributed to states in 14 instalments annually: 11 spread across as many months and the remaining three disbursed in March.
The Finance Commission recommended keeping states' share of central taxes at 41% for the 2021-26 period, unchanged from 2020-21. This marked a reduction from the 42% share proposed for 2015-20, adjusted to account for the creation of the Union Territories of Jammu & Kashmir and Ladakh.
Data from the Controller General of Accounts (CGA) shows a steady rise in tax transfers to states, recording a 5 per cent year-on-year (Y-o-Y) growth during the April-November period of FY25.
Recently, the Reserve Bank of India (RBI) in its State Finances: A Study of Budgets 2024-25 report highlighted the importance of improving expenditure efficiency of states. The central bank has also come heavily on excessive subsidies and cash transfers to farmers, youth and women.
