States Receive Tax Devolution Instalments Worth Rs 1.16 Lakh Crore In August

India has released two instalments of tax devolution to states to help them meet their expenses.

The government has released Rs 1,16,665.75 crore on Aug. 10 compared with the normal monthly devolution amount of Rs 58,332.86 crore for FY23, according to a PIB statement.

“This is in line with the commitment of Government of India to strengthen the hands of states to accelerate their capital and developmental expenditure,” the statement released by the finance ministry said.

States receive a portion of the central taxes through devolution. The 15th Finance Commission mandated 41% of the centre's tax mop-up to be shared with states for 2021-22 to 2025-26. The formula for devolution and the quantum of taxes for each state is also decided by the commission.

At the NITI Aayog's seventh governing council meeting on Aug. 7, state chief ministers had asked the central government to increase their share in the central taxes, citing that the burden on their resources has been rising, according to a PTI report.

Aditi Nayar, chief economist at ICRA, anticipates the devolution amount this fiscal to overshoot the budget estimates for the central tax devolution.

Last year (FY22), states received increased payouts from devolution. While it helped reduce state borrowings in the last quarter, it didn't translate to higher spending, according to Nayar.

“Presuming that the amount devolved in July 2022 was half of the August 2022 figure, this implies that a total of Rs 3.18 trillion (Rs 3.18 lakh crore) has been devolved in the first five months of FY23, which is equivalent to 39% of the BE,” she said. “The assessed amount released so far works out to 34% of our estimate for tax devolution for FY23, and a sizeable growth of 49% over the corresponding period of FY22.”

Nayar anticipates that central tax devolution for the fiscal will toe a sum as large as Rs 9.3 lakh crore in FY23, supported by healthy non-excise tax revenue.