Finance Commission Recommendations 'Watershed' in Indian Federalism: Arvind Subramanian

New Delhi: Terming the 14th Finance Commission recommendations as a "watershed" in the history of Indian federalism, Chief Economic Advisor (CEA) Arvind Subramanian has said the suggestions will provide more fiscal autonomy to states and ultimately benefit the common man.

"Recommendations of the 14th Finance Commission is a watershed in Indian federalism...Common man will be benefited because this will give more power to states to decide on what to spend. Now, how to spend money will not be taken by New Delhi but by the each of the state," he said in an interview on the Information and Broadcasting Ministry's official Youtube channel.

"...it's just completely radical, the states will get lots of more revenue from taxes collected by the Centre and this will considerably add to their spending power," he said.

Mr Subramanian, however, noted that many programmes which are important for poverty alleviation will still be run by the Centre.

Asked what will happen to government's commitment on fiscal consolidation, he said, "Budget is coming up, obviously, the recommendations of the 14th Finance Commission will have to be incorporated because now states know how much money they will have. The Centre knows how much money it will have. So both the Centre and state will have to plan their budget accordingly."

On Tuesday, the 14th Finance Commission headed by former RBI Governor Y V Reddy had recommended an increase in the states' share in the Union taxes to 42 per cent. The Centre has accepted the recommendations and will give states an additional Rs 1.78 lakh crore in 2015-16.

It had also recommended a grants-in-aid of Rs 48,906 crore for 11 revenue deficit states, including Andhra Pradesh post division, West Bengal and Jammu and Kashmir, for 2015-16. For the period up to 2020, it will be over Rs 1.94 lakh crore.

Finance Minister Arun Jaitley had on Tuesday said the Centre has accepted the recommendations of the Finance Commission and it shows NDA government's commitment to cooperative federalism.

Mr Jaitley had said increase to 42 per cent in states' share is "the largest ever change in percentage of devolution".

"In the past, when Finance Commissions have recommended an increase, it has been in the range of 1-2 per cent."

The commission had suggested a fiscal deficit target of 3.6 per cent for 2015-16 and 3 per cent in subsequent years.