17.14        ndian    onom
     cause of cooperative federalism that the new          (iv) Preliminary estimates suggest that all
     government has enthusiastically embraced’, the             States stand to gain from FFC transfers
     Economic Survey 2014–15 concluded. Some of the             in absolute terms. However, to assess
     major recommendations are as follows:                      the distributional effects, the increases
          (i) It has radically enhanced the share of the        should be scaled by population, Net
              states in the central ‘divisible pool’ of         State Domestic Product (NSDP) at
              taxes from the current 32 per cent to 42          current market price, or by States’ own
              per cent which is the biggest ever increase       tax revenue receipts. This will make the
              in vertical tax devolution. The last two          following effects on the ststes’ revenue—
              Finance Commissions, viz., Twelfth                (a) The biggest gainers when scaled by
              (2005–10) and Thirteenth (2010–15)                     any of these indicators tend to be the
              had recommended a state share of 30.5                  Special Category States (SCS, mostly
              per cent (increase of 1 per cent) and                  those in the North-East) and by
              32 per cent (increase of 1.5 per cent),                orders of magnitude.
              respectively in the central divisible pool.       (b) The major gainers in per capita terms
         (ii) It has also proposed a new horizontal                  turn out to be Arunachal Pradesh,
              formula for the distribution of the                    Mizoram and Sikkim for the SCS
                                                                     states and Kerala, Chhattisgarh and
              divisible pool among the states. There are
                                                                     Madhya Pradesh for other states
              changes both in the variables included/
                                                                     (GCS or General Category States).
              excluded as well as the weights assigned to
                                                                     Clearly, this increase in taxes to the
              them. Relative to the Thirteenth Finance
                                                                     States is sustainable for the center,
              Commission, the FFC has incorporated
                                                                     only if there is a reduction in the
              two new variables—
                                                                     central (Plan) assistance to the states
              (a) 2011 population and forest cover;                  (CAS).
                   and                                                    In other words, States will now
              (b) Excluded the variable relating to fiscal      have greater autonomy both on the
                   discipline.                                  revenue and expenditure fronts.
        (iii) Implementing these recommendations            (v) It is also possible to tentatively estimate
              will move the country toward greater              what the FFC recommendations would
              fiscal federalism, conferring more fiscal         do to net spending capacity of the States,
              autonomy on the states. For example,              where net refers to the difference between
              based on assumptions about nominal                the extra FFC transfers and the reduced
              GDP growth and tax buoyancy and the               CAS that will be required by the FFC
              policy measures that are contemplated             recommendations. Broadly, the Special
              for 2015–16, it is estimated that the             Category States will be the biggest gainers.
              additional revenue for the states could be        In addition, there are nine States among
              as much as Rs. 2 lakh crores relative to          the GCS which are expected to get more
              2014–15. Of this, a substantial portion           than 25 per cent of their own tax revenue.
              represents the difference that is purely     (vi) A collateral benefit of moving from CAS to
              due to the change in the States’ share in         FFC transfers is that overall progressivity
              the divisible pool.                               will improve; that is, on average, States