The Ministry of Finance has announced the release of the second monthly instalment of the Post Devolution Revenue Deficit (PDRD) Grant of Rs. 9,871 crore for the financial year 2021-22. This grant has been allocated to 17 states in accordance with the guidelines set by Article 275 of the Constitution.
Understanding the Post Devolution Revenue Deficit (PDRD) Grant
The PDRD Grant is allocated by the central government to various states under the purview of Article 275 of the Constitution. These funds help bridge the gap in Revenue Accounts of the states following the tax pool devolution from the Centre. The Finance Commission determines the allocation and distribute these grants in monthly instalments.
The 15th Finance Commission has suggested PDRD grants reaching around Rs. 3 trillion over a five-year period until FY26. It is noteworthy that the number of states qualifying for these revenue deficit grants is projected to decrease from 17 in FY22 to six by FY26.
The Commission decides the eligibility and amount of grant for each state based on the difference between the assessed revenue and expenditure of the state.
States Recommended for receiving PDRD Grants
Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Karnataka, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand, and West Bengal are recommended to receive PDRD grants across a five-year span. The Ministry of Finance has given its approval on this recommendation.
Mandate of Article 275 of the Indian Constitution
Article 275 of the Constitution mandates the provision of sums distributed as grants-in aid to states identified by Parliament as requiring financial assistance. These grants, paid from the Consolidated Fund of India, may differ for each state.
They are designed to enable states to take on schemes for promoting welfare among the Scheduled Tribes and enhance administration levels in Scheduled Areas. These grants function to correct Inter-State disparities in financial resources and maintain uniform nationwide welfare schemes.
Decoding Revenue Account and Capital Account
A revenue account comprises the government’s current receipts, including tax revenues and other income. Meanwhile, a capital account includes capital receipts and payments, representing the government’s assets and liabilities. Capital receipts encompass loans or capital raised by governments through various means.
Centre-State Financial Relations & Constitutional Provisions
The Indian Constitution defines regulations related to tax and non-tax revenue distribution and borrowing powers, supplemented by grants-in-aid provisions from the Union to the States. Part XII, Articles 268 to 293 deal with Centre-State financial relationships.
Taxing Powers are divided between the Centre and States; exclusive levying power for taxes lies with the Parliament for Union List subjects, and with state legislatures for State List subjects.
Distribution of Tax Revenue
Several articles of the constitution outline the distribution of tax revenues. For example, Article 268 includes duties levied by the Union but collected and appropriated by the States. Article 269 incorporates taxes levied and collected by the Union but assigned to the States.
Article 270 encompasses taxes levied and collected by the Union but distributed between the Union and the States, excluding duties and taxes referred to in Articles 268, 269 and 269-A.
Grants-in-Aid
In addition to tax sharing, the Constitution allows for Grants-in-aid to be provided to the States from the Central resources. These can be Statutory Grants (Article 275) provided by the Parliament from the Consolidated Fund of India, or Discretionary Grants (Article 282) which can be made by either the Centre or the states for any public purpose.
