The Centre has doubled the tax devolution to states in October to boost capital expenditure, releasing a total of Rs 1.78 trillion in tax devolution, including an advance installment of Rs 89,086.5 crore. This decision aims to support states during the upcoming festive season and enhance their capital spending as well as funding for development and welfare projects, according to a statement from the finance ministry.
Among the larger states, Uttar Pradesh received the highest allocation at Rs 31,962 crore, followed by Bihar at Rs 17,921 crore, Madhya Pradesh at Rs 13,987 crore, West Bengal at Rs 13,404 crore, and Maharashtra at Rs 11,255 crore.
For the financial year 2024-25, the government is expected to share approximately 32.5% of central taxes with states, which is below the 41% recommended by the 15th Finance Commission, as per the Union Budget Estimate for FY25. This lower share is partly due to cess and surcharges imposed by the Centre that are not included in the devolution to states. States have frequently expressed concerns about receiving less than the Finance Commission’s recommendations.
This is the second instance in the current financial year that the Centre has provided an advance monthly installment; the first was in June, when Rs 1.39 trillion was frontloaded to the states.
State capital expenditure is projected to have decreased by 17% year-on-year in the first four months of the current financial year, continuing a trend of reduced public sector capital spending.
Provisional estimates for FY24 indicate that states’ share of central taxes stands at around 32.6%. In absolute terms, while the provisional amount for FY24 was Rs 11.3 trillion, the Budget Estimate for FY25 shows an increase to Rs 12.5 trillion allocated for states.
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