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Sanjeev Kumar Patro

Bhubaneswar: Odisha's share in the net proceeds of central taxes and duties seems to have been sliced by the Fifteenth Finance Commission (FFC).

The State's share has declined to 4.629 per cent from 4.642 per cent as recommended by the Fourteenth Finance Commission (14th FC).  Even, in devolution of service tax proceeds, the State's share has been down to 4.63 per cent from 4.74 per cent as mandated by the 14th FC.

Such a tweak effected by the FFC in the inter-se share of central taxes to States, including Odisha, was to the fore when on Saturday Finance Minister Nirmala Sitharaman tabled the interim report of the FFC in the Parliament.

Among 28 states, after J&K was made a UT, as many as ten states have seen a spike in their share of the net proceeds of taxes and duties devolved by Centre. The states are: Bihar, Chhattisgarh, Gujarat, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, and West Bengal.

This is for the second consecutive time the share of Odisha in central devolution awarded by the Finance Commission has seen a slash. The 14th FC had marginally slashed the devolution share of Odisha to 4.64 per cent.

It needs mentioning that when Fourteenth Finance Commission’s (FC – XIV) new criteria of ‘Demographic Change’ had cut down marginally State’s share in tax devolution to 4.64 per cent, Odisha bore the brunt again as the FFC has introduced a new norm, the "tax effect", for states carrying a weightage of 2.5 per cent, which resulted in a further cut in tax share.

What is Tax effect? This criterion has taken into  account the efforts made by the States in expansion and deepening of tax net under GST. It has also looked into the progress made by the States in increasing tax and non-tax revenues.

According to FFC, the inter-se share of tax of a State is determined by five determinants: 2011 population figures (weightage reduced to 15% from 17.5% in 14th FC), Demographic change (weightage increased to 12.5% from 10%), Income distance ( reduced to 45% from 50%) and Area (15 pc).

An analysis shows the two criteria - Demographic change and tax effect - have turned unfavourable for the State.

Consider this.  According to 2001 census, the net migration from Odisha was at over 2.07 lakh. And the 2011 migration data has estimated net migration figure from the State at around 3.03 lakh. This shows the migration has increased from Odisha during period 2001-2011.

The FFC awards higher devolution to States that have higher migrant population. It's for this reason states like Maharashtra, Gujarat and Punjab have seen a rise in their inter-se share of taxes. And the source States have seemingly faced the penalty.  

Similarly, Odisha's tax basket is very narrow. The progress in mobilisation of tax and non-tax revenue is relatively slower, after remaining almost stagnant for nearly half-a-decade.  

The lessons here are all eyes are now on the 2021 census. Because, a dip in net migration will help Odisha in future Finance Commission awards, provided State improves its own revenue mobilisation.

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