New Delhi: As per Article 112 of the Indian Constitution, the Union government is required to present its estimated income (receipts) and expenditure in the form of an Annual Financial Statement to the Parliament. Although it is a Union Budget and reflects the Centre’s receipts and expenditures, a big chunk of money from the Union budget flows to the States in form of Central Sector Schemes, Centrally Sponsored Schemes, and other Transfers to States.
So, though it is still the Union Budget, it is equally crucial for States as a considerable chunk of Rs 40 lakh crore of the Union Budget directly concerns the States. As per the budget documents, the total resources being transferred to the States including the devolution of the State’s share, grants and loans, and release of funds under Centrally Sponsored Schemes, among other things in the current financial year (April to March 2023) has been pegged at over Rs 16.11 lakh crore. It is an increase of nearly Rs 3 lakh crore over the actual transfers to States during the preceding year.
In fact, total transfers to States, as estimated by Finance Minister Nirmala Sitharaman, account for over 40 per cent of the total budgeted expenditure of the Central Government for the current financial year which has been pegged at 39.45 lakh crore.
In the last six years, the total transfers to States have seen a steady rise except in 2019-20 when the total transfers to states had declined in real terms. Total transfers to states increased from Rs 9.86 lakh crore in 2016-17 to Rs 10.85 lakh crore in the next fiscal and then it went up to Rs 11.95 lakh crore in 2018-19 before declining to Rs 11.45 lakh crore in 2019-20.
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However, with the outbreak of the Covid-19 global pandemic, which has killed more than 6.7 million people worldwide and over 5,30,000 people in India, the Central transfers to States have gone up considerably as the Central government was required to help States that faced extremely difficult financial situations. With the imposition of a nationwide lockdown in March 2020, some states even faced the possibility of default in making payments on their wage and pension bills.
As a result, the Central government’s total transfers to states jumped to 13.20 lakh crore in 2020-21, an increase of over 15 per cent. In the next year, the total transfers went up to 13.89 lakh crore in 2021-22. However, as per the budget estimate, this year the total transfers would again see a massive jump of Rs 2.23 lakh crore, an increase of over 16 per cent, from Rs 13.89 lakh crore last year to Rs 16.12 lakh crore this year.
The biggest chunk of this amount is transferred to States in the form of their share in the divisible pool of Central taxes. This amount has been estimated at Rs 8.17 lakh crore. While transfers to States under the Central Sector Schemes and Centrally Sponsored Schemes accounts for nearly Rs 3.84 lakh crore, the transfers under Finance Commission grants amount to Rs 1.92 lakh crore.
In addition to these transfers, other important transfers to states such as external aid for projects, special assistance for north-eastern states, and special assistance for tribal areas, among other things, account for a transfer of nearly Rs 1.64 lakh crore. The Central government would also transfer more than Rs 55,000 crores to Delhi and Puducherry this year, taking the total transfers to States to a record Rs 16.12 lakh crore.
