REVENUE DEFICIT GRANTS SCRAPPED

16TH FINANCE PANEL RECOMMENDS LINKING LOCAL BODY GRANTS TO DUE POLLS, DIGITAL AUDIT

- NARAYANAN V

STATES MAY BE forced to widen their tax and non-tax revenue sources, rationalise committed expenditure and rein in subsidy payouts, as the 16th Finance Commission (FC) has recommended doing away with sectorand state-specific revenue deficit grants.

The Commission said such grants have created an "endless cycle of persistent revenue deficits" instead of addressing the problem. "Our review and assessment of state finances in general, and that of tax revenues, committed expenditure and discretionary expenditures in particular, shows that there is significant scope of increasing revenues and rationalising expenditure," the finance panel said in its report.

Revenue deficit, or 'gap', grants are intended to bridge the post-devolution gap between revenues and expenditures on the states' revenue account.

The FC noted that despite a significant increase in devolution of funds from the Centre, several states continue to report sharp rise in revenue deficits, driven by higher committed expenditure such as salaries and pensions, as well as a "worrying" increase in subsidies and transfers in recent years.