Dissent is the soul of debate.

Justice Felix Frankfurter of the United States Supreme Court and Justice K Subba Rao of the Supreme Court of India wrote many famous dissenting judgements. The most celebrated dissenting judgement in the history of Indian courts was authored by Justice H R Khanna in the case of ADM Jabalpur. According to Chief Justice Hughes of the US Supreme Court, “a dissent in the court of last resort is an appeal to the brooding spirit of the law, to the intelligence of a future day when a later decision may possibly correct the error….”

Mr Abhijit Sen can take heart that he may not be alone when he wrote his four-page dissent to the Report of the Fourteenth Finance Commission (FFC). It deserved a more reasoned response than the rather dismissive one-paragraph reply appended by the Chairman and the other members of the FFC.

Be that as it may, let us examine the issue objectively.

Transfer of funds to States

Should the Central government transfer more resources to the State Governments? My view is yes, a resounding yes. Resource transfers fall under four heads. They are:

1. States’ share of taxes and duties (mandatory under Article 270 of the Constitution);

2. Non-Plan grants and loans (discretionary, based on the discretion of line Ministries and Departments);

3. Central Assistance to States’ Plans (hitherto based on agreement between the Planning Commission and the State concerned); and

4. Central Assistance for Central government schemes (discretionary, but governed by principles of burden-sharing).

I have long held the view that States’ share of taxes and duties collected by the Centre must be significantly increased. I have also long held the view that Central government schemes must be very few and must be fully funded by the Centre. If matters had stopped there, there would be no dispute. The States would have to do with their share of taxes and duties transferred to them and their own resource mobilisation.

Matters did not stop there. The Centre wanted States to implement its Plan; it also wanted States to draw up State Plans. States asked for money, Gross Budgetary Support (GBS) came into being, and the Planning Commission became the arbiter. Besides, just as the Centre had its non-Plan schemes, so did the States have their non-Plan schemes, and wanted money for those schemes too. Article 275 of the Constitution came in handy. Instead of co-operative federalism, the Centre and the States began to quarrel over transfer of funds under Article 275.

UPA set the ball rolling

On January 2, 2013, the UPA government constituted the FFC as required under Article 280 of the Constitution. One of the terms of reference was to recommend “the principles which should govern the grants-in-aid of the revenues of the States.” Further, on February 17, 2014, while presenting the Interim Budget for 2014-15, I announced that the Centrally Sponsored Schemes (CSS) had been restructured into 66 progammes and funds for the schemes would be released as Central assistance to State plans. Consequently, Central assistance to State plans rose dramatically from

Rs 136,254 crore in 2013-14 to Rs 338,562 crore in 2014-15.

The UPA government had set the ball rolling. Mr Jaitley maintained the same numbers when he presented the regular Budget in July 2014.

The FFC has kicked the ball further. In major shifts from the past, it has increased the States’ share of taxes and duties from 32 per cent to 42 per cent. It has also recommended only grants for revenue deficit, disaster relief and local bodies. All other grants have been axed. Instead, the FFC has recommended a separate institutional arrangement for grants to sectors such as health, education, drinking water and sanitation. The result: more untied funds to the States. The expectation: more financial responsibility on the part of the States.

Sen’s agreement and dissent

Mr Abhijit Sen does not disagree with the core recommendations of the FFC. His main concern is that major shifts from past practice will “disrupt existing plan transfers with likely very serious effects in the first year of the award period.” He has, therefore, recommended that the States’ share of taxes be kept at 38 per cent in the first year and maintained at that level until there is agreement on the separate institutional arrangement. Post agreement, he supports States’ share being raised to 42 per cent.

The Chairman and other members have responded that it is “for the authorities to determine the transition path and make arrangements as are appropriate.” The Government, characteristically, has played safe. It has accepted that the States’ share of taxes and duties will be 42 per cent but, in respect of grants-in-aid of revenue and Revenue Deficit grant, it has accepted the recommendations only “in principle”. Government has also promised to put in place an appropriate institutional arrangement.

All this may seem arcane. Not if you believe that Normal Central Assistance (to the Plan), Rashtriya Krishi Vikas Yojana and Backward Region Grant Fund, specifically referred to by Mr Sen, are important interventions. Mr Sen has appealed to the “intelligence of a future day”. That day was yesterday, and when you read this column on Sunday you will know if the Government has found a satisfactory solution.

Strong on the social sector side by Yashwant Sinha

Budget making is a complex exercise, especially in a country like India. Therefore, the parameters to judge the annual budget are also many. For me, the arithmetic of the budget is the first. According to the statements made by the Prime Minister and the Finance Minister, one expected the fiscal deficit targets to be adhered to. However the Finance Minister has extended it from two to three years. Thus, the reduction in fiscal deficit between this year and the next is going to be only twenty basis points and in revenue deficit, only ten basis points. As the author of the Fiscal Responsibility and Budget Management Act, I am a little disappointed. As far as tax revenues are concerned, the Finance Minister has not been adventurous. In budget estimates for 2015-16, he has generally kept close to the revised estimates and not the highly inflated budget estimates of this year. It is on the expenditure side that one sees some interesting figures.

The Finance Commission’s recommendation of raising the share of States in the divisible pool of Central taxes, from 32 per cent to 42 per cent has been cleverly managed. The States’ share in absolute numbers, BE to BE, has gone up from this year to the next by around Rs.1.36 lakh crore. At the same time, the Central plan assistance to the States has gone down from Rs.3,38,000 crore to Rs.2,05,000 crore. Therefore, the two cancel each other out. Thus, the net additional resources transferred to the States, including States’ share of taxes and duties, non-Plan grants and loans, Central assistance to State plans, assistance for Central and Centrally-sponsored schemes, is only Rs.64,000 crore in 2015-16.

On the expenditure side, I expected the Finance Minister to deal with the Expenditure Management Commission’s report, the Shanta Kumar Committee report on food sector management and the rationalisation of Central and Centrally sponsored schemes in his speech. We will have to wait for that.

The second aspect of the Budget that one should look at is that of growth impulses. There are plenty of them in the budget. The emphasis on infrastructure development is well placed. The allocation of Rs.70,000 crore, the setting up of the National Investment and Infrastructure Fund with an annual flow of Rs.20,000 crore, tax free infrastructure bonds for projects in the rail, road and irrigation sectors, revitalisation of the PPP mode, and the Atal Innovation Mission, concessions to the IT industry, incubation centres to support start-ups, corporatisation of ports, improvement in the ease of doing business, resources that will become available through the monetisation of gold, and skill development programmes will all go a long way in providing much-needed impetus to this sector. However, I wish that the Finance Minister had devoted a sentence or two about unlocking the pending projects in the infrastructure sector mentioned in the Economic Survey.

I was also a little disappointed at the allocation of only Rs.5,300 crore for the Pradhan Mantri Krishi Sinchai Yojna. This is a game-changing idea and needed greater attention and larger allocation.

The third aspect of the Budget relates to the livelihood issue. Making an allocation for MGNREGA is not enough without drastically reforming MGNREGA especially after what the Prime Minister had to say about it in the Lok Sabha the other day. There is no doubt that skill development and growth in economy generally will create enormous employment opportunities in the country in the days to come. As far as the quality of life issues are concerned, a vision for 2022 has been included in this budget. It would have been better if the target for 2015-16 had also been separately mentioned. A distant goal is always less credible.

The Budget is strong on the social sector side as it moves from Jan Dhan to Jan Suraksha and a functional social security system for all Indians.

On the taxation side, what is a little disappointing is there being no change in the rate of personal income tax. The Finance Minister would have done well to raise the exemption limit of personal income tax to Rs.3,00,000 from Rs.2,50,000. This would have made the reduction in corporate tax from 30 per cent to 25 per cent more acceptable to the people. Various measures have been included in the budget to promote savings but an increase in the rebate on income tax on interest income would have been welcome. The housing sector could have received a further boost if the income tax concession on interest paid had been raised from to Rs.2,50,00 from Rs.2,00,000. The tightening of provisions relating to black money and penal provisions were long overdue and welcome. I still believe that the Direct Taxes Code is needed and should not be dumped.

The Finance Minister has set a challenging target of operationalising GST from April 1, 2016. Not only the government of India but also State governments will have to move rapidly to stick to this deadline. The differential rate of tax on service tax and central excise has not been very helpful.

On the whole, like the Railway budget, the general budget is also a vision document. The key will be to provide flesh and blood to the vision and implement it.

(Yashwant Sinha is former Finance Minister and former External Affairs Minister.)