Just three days before the government presents its annual Budget, it has accepted a report that provides states with a record increase of 10 percentage points in their share of central or federal taxes. In a letter to all Chief Ministers, Prime Minister Modi said: "We have wholeheartedly accepted the recommendations of the 14th Finance Commission, although it puts a tremendous strain on the Centre's finances." The Finance Commission - a committee of five experts - is tasked with evaluating and modifying the financial relationship between the union and state governments. The 14th Finance Commission submitted its report to the President on December 15, 2014. The share of the 29 states jumps from 32 per cent to 42 per cent (states had sought 50 per cent); so their revenue from federal taxes will touch Rs. 348,000 crore or $58 billion in 2014-15 and Rs. 526,000 crore or about $86 billion in 2015-16. The jump will reduce the fiscal dependence of the state governments on the Centre; the PM underscored this in his letter, saying the move reaffirms his commitment to "cooperative federalism." "The higher tax devolution will allow states greater autonomy in financing and designing of schemes as per their needs and requirements," the Finance Commission's report said. "The consequence of this much greater devolution to the states is that the fiscal space for the Centre will reduce in the same proportion," it added.
