Impact of Fourteenth Finance Commission, Karnataka Budget, 2015–16
Pranay Kotasthane and Varun K Ramachandra, The Takshashila Institution
Economic & Political Weekly, Vol – L No. 46-47, November 21, 2015
This article identifies the Karnataka government’s responses and adjustments to the Fourteenth Finance Commission as a result of changes in the tied,untied and overall transfers from the union government. It also highlights the impact of restructuring of union grants on Karnataka’s allocations. It argues that there is now renewed impetus on the states to have larger control over their desired fiscal direction, priorities and areas of improvement.
This article distils the changes in transfers to the state of Karnataka into specific responses by the state government. Our overall assessment is that, while the FFC has given a golden opportunity to states like Karnataka to raise their game and be fiscally autonomous, the potential still remains underutilised.
The methodology followed here can be used as a template for assessing the specific impacts of the restructured fiscal space for other states as well. The recommendations of the FFC have paved the way towards “cooperative federalism” (Fourteenth Finance Commission 2015), and there is renewed impetus for the states to have larger control over its desired fiscal direction, priorities, and areas of improvement. That said, it still remains to be seen if the union sets up the institutional changes as prescribed by the FFC, which will truly strengthen the federal structure and make the states masters of their own destiny.
The findings from the paper are summarised in the tables given below: