Meghalaya govt has sought a higher grant-in-aid of Rs 1.2 lakh crore: 16th Finance Commission Chairman
By Our Reporter
SHILLONG, Sep 30: Chairman of the 16th Finance Commission (FC), Arvind Panagariya, on Monday stated that the Meghalaya government has sought a grant-in-aid of Rs 1.2 lakh crore over the next five years. However, he indicated that the central government is unlikely to fully support this ambitious request.
Speaking after a meeting with Chief Minister Conrad K Sangma, members of his Cabinet, and senior government officials, Panagariya remarked, “Grants in aid come from the consolidated fund of the central government. These are tricky since the devolution out of the central tax revenue has been extremely large after the 14th Finance Commission.”
He emphasized the discretionary role of the central government in determining whether funds come from the consolidated fund of India or if further grants are provided based on FC recommendations. “The central government, in a way, exercises its discretion,” he said.
Panagariya noted that the Meghalaya government had also requested an increase in the vertical devolution to the state, asking for a rise from the current 41% to 50%. “While there is some consensus among the Northeastern states on this, the Finance Commission typically avoids making large leaps that disturb the status quo, as it affects all states’ budgets,” he explained.
Cautioning against drastic changes, Panagariya added, “Even those who benefit from a large jump cannot absorb it quickly. It would create a sudden imbalance, and the central government might find it challenging to respond.” He also pointed out that horizontal devolution (the distribution of tax proceeds among states), which mandates the shares for all 28 states, would be affected by any increase in vertical devolution (the distribution of tax proceeds between the Centre and the states).
While consultations with states are ongoing, Panagariya reiterated that the Finance Commission’s approach has been gradual in order to avoid disruption. “It’s too early to say, as we have visited only a quarter of the 28 states,” he said, adding that a decision will be made after all states have been heard.
Meghalaya’s government presented several proposals, including a suggestion to increase the weight given to forest cover in determining fund allocations, raising it from 10% to 15%. Panagariya acknowledged that Meghalaya’s presentation was comprehensive, covering aspects such as demography, geography, and tourism, and praised the state’s progress on reducing maternal mortality and its efforts on early childhood development.
However, he flagged concerns about the state’s fiscal health, noting that its debt-to-GDP ratio and fiscal deficit are slightly higher than desirable levels. While Meghalaya’s “Mission 10” plan, which aims to make the state a USD 10 billion economy by 2028, is ambitious, Panagariya’s remarks suggest that full financial backing from the central government for the Rs 1.2 lakh crore plan is unlikely.
Rs 43,000-crore grant
for critical sectors
The state has also requested grants totaling Rs 43,251 crore for critical sectors from the 16th Finance Commission. Grants are funds that seek to fund a specific activity, while grant-in-aid funds a range of activities.
According to a PowerPoint presentation submitted to the Finance Commission, the state government has also requested Rs 69,324 crore to cover the pre-devolution gap, Rs 500 crore for restructuring state public sector enterprises, and Rs 1,670 crore in grants for local bodies.
The breakdown of the grants requested for critical sectors includes Rs 1,652 crore for agriculture, Rs 3,600 crore for tourism, Rs 14,750 crore for road connectivity, Rs 6,207 crore for power, Rs 4,820 crore for urban development, Rs 4,122 crore for water, Rs 923 crore for forest and environment, Rs 1,880 crore for health and nutrition, Rs 1,940 crore for education, Rs 500 crore for private sector development, Rs 1,607 crore for youth engagement, and Rs 1,250 crore for improving the standard of administration.
The pre-devolution gap refers to the financial shortfall that exists between a state’s revenue and expenditure before it receives its share of taxes and funds devolved by the central government.
States often calculate their pre-devolution gap to highlight the financial imbalance they face in managing expenditures for essential services and infrastructure. They present this gap to the Finance Commission to justify the need for additional grants or funds to fill the shortfall before the central tax devolution kicks in.
In essence, it helps assess how much funding a state needs beyond its own revenues to meet its obligations, especially in key sectors like health, education, and infrastructure. The gap, when addressed through grants or devolution, ensures states can maintain fiscal stability.
Political parties urge FC to address key issues
Several political parties in Meghalaya presented their concerns and recommendations during a meeting with members of the 16th Finance Commission on Monday.
The United Democratic Party (UDP) highlighted pressing issues related to urban development in Shillong, particularly traffic congestion, pollution, and waste management. UDP general secretary stressed the need to restore Shillong’s reputation as the “Scotland of the East” and improve civic amenities. He also raised concerns over the decline in education quality and the challenges faced by the health sector, especially for the disadvantaged population, noting that the state has around 3 lakh drug users.
The Hill State People’s Democratic Party (HSPDP) called for increased grants to support local governments and the development of infrastructure, particularly roads and bridges. HSPDP general secretary, PL Ryntathiang, emphasized the need to connect around 600 villages with all-weather roads by 2030 and urged the Finance Commission to raise the vertical devolution from 41% to 45% for the northeastern region.
Meanwhile, the All India Trinamool Congress (AITC) Meghalaya unit requested the commission to prioritize development in health, education, de-addiction centers, and road connectivity, with a focus on boosting tourism.
All parties stressed the importance of timely release of funds and urged the Finance Commission to address climate change by protecting vital water catchment areas.