Finance Commission Chairman Arvind Panagariya Urges States to Enhance Own Revenue for Fiscal Self-Reliance

The 16th Finance Commission's Chairman, Arvind Panagariya, has urged states to maximise their revenue generation to achieve fiscal independence. Despite this push for self-reliance, he confirmed that the usual allocation of grants to states will persist. "The Commission generally does encourage states to raise as much of their own revenue as possible. Ultimately this revenue itself is a function of the GSDP of the state, and more revenue means that the GSDP is larger, and a larger GSDP is desirable in its own right, because that's what leads to higher capital incomes," Panagariya stated at a press conference.

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Focus on Nagaland's Financial Needs

Panagariya addressed Nagaland's financial situation, noting its reliance on central funding. The special category status linked to Planning Commission grants is no longer relevant since such grants are not provided anymore. However, Nagaland still receives preferential treatment in some schemes, with a 90% central contribution compared to 60% for other states. "Not as much as one would like it to, but it Nagaland is raising some of its own revenue as well while a significant part is through the devolution and the grants-in-aid, etc," he mentioned.

Proposals and Recommendations

Nagaland has put forward several proposals to the Commission. These include adding certain cesses and surcharges to the divisible pool, currently retained by the central government, which limits states' revenue potential. The state also suggested a "disability index" to account for its unique geographical and economic challenges and proposed "capital deficit grants" in addition to traditional revenue deficit grants.

Project-Specific Funding Requests

Nagaland has requested funding for various projects such as a new airport, the Foothill Road project, renewable energy infrastructure, hydropower generation, mineral exploration, and advancements in drone technology. These projects aim to boost the state's development and economic growth.

Consultations with State Representatives

The Finance Commission's delegation met with Chief Minister Neiphiu Rio, other ministers, and senior bureaucrats during their visit. They also engaged with representatives from trade, industries, commerce sectors, rural and urban local bodies, and political parties. This consultation phase is crucial before finalising recommendations.

The Commission is currently gathering information and will finalise its recommendations after consulting all 28 states. These recommendations are expected by October 2025.