Recommendations of the Twelfth Finance Commission

Recommendations of the Twelfth Finance Commission

Restructuring Public Finances

• Centre and States to improve the combined tax-GDP ratio to 17.6 per cent by 2009-10.
• Combined debt-GDP ratio, with external debt measured at historical exchange rates, to be brought down to 75 per cent by 2009-10.
• Fiscal deficit to GDP targets for the Centre and States to be fixed at 3 per cent.
• Revenue deficit of the Centre and States to be brought down to zero by 2008-09.
• Interest payments relative to revenue receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.
• States to follow a recruitment policy in a manner so that the total salary bill, relative to revenue expenditure, net of interest payments, does not exceed 35 per cent.
• Each State to enact a fiscal responsibility legislation providing for elimination of revenue deficit by 2008-09 and reducing fiscal deficit to 3 per cent of State Domestic Product.
• The system of on-lending to be brought to an end over time. The long term goal should be to bring down debt-GDP ratio to 28 per cent each for the Centre and the States.

Sharing of Union Tax Revenues

• The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Share of States to come down to 29.5 per cent, when States are allowed to levy sales tax on sugar, textiles and tobacco.
• In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that would accrue to it, had the entire service tax proceeds been part of the shareable pool.
• The indicative amount of overall transfers to States to be fixed at 38 per cent of the Centre’s gross revenue receipts.

Local Bodies

• A grant of Rs.20,000 crore for the Panchayati Raj institutions and Rs.5,000 crore for urban local bodies to be given to States for the period 2005-10.
• Priority to be given to expenditure on operation and maintenance (O&M) costs of water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of solid waste management through public-private partnership.

Calamity Relief

• The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs.21,333 crore for the period 2005-10.
• The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.
• The definition of natural calamity to include landslides, avalanches, cloud burst and pest attacks.
• Provision for disaster preparedness and mitigation to be part of State Plans and not calamity relief.

Grants-in-aid to States

•  The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, and the Centre should confine itself to extending plan grants and leaving it to States to decide their borrowings.
• Non-plan revenue deficit grant of Rs.56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs.10,172 crore recommended for the education sector to eight States. Grants amounting to Rs.5,887 crore recommended for the health sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.
• A grant of Rs.15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.
• Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs.1,000 crore, Rs.625 crore, and Rs.7,100 crore, respectively.

Fiscal Reform Facility

•  With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

Debt Relief and Corrective Measures

• Central loans to States contracted till March,2004 and outstanding on March 31, 2005 amounting to Rs.1,28,795 crore to be consolidated and rescheduled for a fresh term of 20 years, and an interest rate of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.
• A debt write-off scheme linked to reduction of revenue deficit of States to be introduced. Under this scheme, repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31,2004 will be eligible for writeoff.
• Central Government not to act as an intermediary for future lending to States, except in the case of weak States, which are unable to raise funds from the market.
• External assistance to be transferred to States on the same terms and conditions as attached to such assistance by external funding agencies.
• All the States to set up sinking funds for amortization of all loans.
• States to set up guarantee redemption funds through earmarked guarantee fees.

Others

•  The Centre should share ‘profit petroleum’ from New Exploration and Licensing Policy (NELP) areas in the ratio of 50:50 with States where mineral oil and natural gas are produced. No sharing of profits in respect of nomination fields and non-NELP blocks.
• Every State to set up a high level committee to monitor the utilization of grants recommended by the TFC.
• Centre to gradually move towards accrual basis of accounting.

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Posted in: Indian Economy

Twelfth Finance Commission (2005-10)

Twelfth Finance Commission (2005-10)

The Twelfth Finance Commission (TFC) was appointed on November 1, 2002
to make recommendations regarding the distribution between the Union and the States
of net proceeds of shareable taxes, the principles which should govern the grants-in-aid of the revenues of States from the Consolidated Fund of India and the measures needed to augment the Consolidated Fund of a State to supplement the resources of local bodies in the State on the basis of the recommendations made by the Finance Commission of the State. The terms of reference mandated the Commission to review the state of the finances of the Union and the States and suggest a Plan by which the Governments, collectively and severally, restore budgetary balance, achieve macroeconomic stability and debt reduction
along with equitable growth. Furthermore, the Commission was also asked to suggest
corrective measures for debt sustainability and to review the Fiscal Reform Facility introduced by the Central Government.

The Commission submitted its report on November 30, 2004 covering the period 2005-10. On Feb. 2, 2005 Union Government accepted all recommendations of 12th Finance Commission.
The Commission recommended debt relief to States linked to fiscal reforms, doing away
with the present system of Central assistance to State plans in the form of grants and loans
and transfer of external assistance to States on the same terms and conditions as
attached to such assistance by external funding agencies. The TFC raised the share
of States in shareable Central taxes from 29.5 per cent to 30.5 per cent. Total transfers
to States recommended by the TFC amount to Rs.7,55,752 crore over the five year period
2005-10. Of this, transfers by way of share in Central taxes and grants-in-aid amount to
Rs.6,13,112 crore and Rs.1,42,640 crore, respectively. The total transfers recommended by the TFC are higher by 73.8 per cent over those recommended by the Eleventh Finance Commission (EFC). Within the total transfers, while the share in Central taxes is higher by 62.9 per cent, grants-inaid recommended by the TFC are higher by 143.5 per cent over those recommended by the EFC.

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Posted in: Indian Economy

Reserve Bank of India

Reserve Bank of India

It is the Central Bank of the country. The Reserve Bank of India was established in 1935 with a capital of Rs. 5 crore. This capital of Rs. 5 crore was divided into 5 lakh equity shares of Rs.100 each. In the beginning the ownership of almost all the share capital was with the non-government shareholders. In order to prevent the centralisation of the equity shares in the hands of a few people, the Reserve Bank of India was nationalised on January 1, 1949. The general administration and direction of RBI is managed by a Central Board of Directors consisting of 20 members which includes 1 Governor, 4 Deputy Governors, 1 Government official appointed by the Union Government of India to give representation to important stratas in economic life of the country. Besides, 4 directors are nominated by the Union Government to represent local boards. New Departments Constituted in RBI    On July 6, 2005 Reserve Bank of India has constituted a new department, named Financial Market Department for surveillance on financial markets. The Deputy Governor of RBI Mr. Rakesh Mohan will look after this newly created department. Besides this new department Mr. Rakesh Mohan has been given responsibility of Monetary Policy Department.    The Constituted new Financial Market department will seperate the activities of debt management and monetary operations in future. This department will also perform the duties of developing & monitoring the instruments of money market and also monitoring the government securities and foreign money markets.

Apart from the central board there are 4 local boards also and their head offices are situated in Mumbai, Chennai, Kolkata and New Delhi. 5 members of local boards are appointed by the Union Government for a period of 4 years. The local boards work according to the instructions and orders given by the Central Board of Directors, and from time to time they also tender useful advice on important matter. The head office of Reserve Bank of India is in Mumbai. At present Dr D Subbarao is the Governor of Reserve Bank of India. Functions of Reserve Bank 1. Issue of Notes –The Reserve Bank has the monopoly of note issue in the country. It has the sole right to issue currency notes of various denominations except one rupee note. The Reserve Bank acts as the only source of legal tender money because the one rupee note issued by Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for the note issue. Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 crore, of which at least Rs. 115 crore should be in gold. 2. Banker to the Government–The second important function of the Reserve Bank is to act as the Banker, Agent and Adviser to the Government. It performs all the banking functions of the State and Central Government and it also tenders useful advice to the Government on matters related to economic and monetary policy. It also manages the public debt for the Government. 3. Banker's Bank–The Reserve Bank performs the same function for the other banks as the other banks ordinarily perform for their customers. It is not only a banker to the commercial banks, but it is the tender of the last resort. 4. Controller of Credit–The Reserve Bank undertakes the responsibility of controlling credit created by the commercial banks. To achieve this objective it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country. 5. Custodian of Foreign Reserves–For the purpose of keeping the foreign exchange rates stable the Reserve Bank buys and sells the foreign currencies and also protects the country's foreign exchange funds. 6. Other Functions–The bank performs a number of other developmental works. These works include the function of clearing house arranging credit for agriculture, (which has been transferred to NABARD) collecting and publishing the economic data, buying and selling of Government securities and trade bills, giving loans to the Government buying and selling of valuable commodities etc. It also acts as the representative of Government in I.M.F. and represents the membership of India.

Printing of Securities and Minting in India 1. India Security Press (Nasik Road)–Postal Material, Postal Stamps, Non-postal Stamps, Judicial and Non-judicial Stamps, Cheques, Bonds, NSC, Kisan Vikas Patra, Securities of State Governments, Public Sector Enterprise and Financial Corporations. 2. Security Printing Press (Hyderabad)–Established in 1982 for meeting the demand for postal material by Southern States. It also fulfils the demand for Union Excise Duty Stamps of the Country. 3. Currency Notes Press (Nasik Road)–Since 1991, this press prints currency notes of Rs. 1, Rs. 2, Rs. 5, Rs. 10, Rs. 50, and Rs. 100. (Earlier printing of Rs. 50 and Rs. 100 currency notes was not done here). 4. Bank Notes Press (Dewas)–Currency notes of Rs. 20, Rs. 50, Rs. 100 and Rs. 500 are printed here. 5. Modernised Currency Notes Press–Two new modernised currency notes press are under establishment at Mysore (Karnataka) and Salboni (West Bengal). 6. Security Paper Hoshangabad (Established in 1967-68) makes production of Bank and Currency notes paper. 7. Coins are minted at four places–Mumbai, Kolkata, Hyderabad and Noida.

Website : www.rbi.org

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Posted in: Indian Economy

Urban Population

Urban Population

S No. State / UT Persons Males Females 1 India@ 286,119,689 150,554,098 135,565,591 2 Andaman & Nicobar Islands 116,198 64,011 52,187 3 Andhra Pradesh 20,808,940 10,590,209 10,218,731 4 Arunachal Pradesh 227,881 125,261 102,620 5 Assam 3,439,240 1,837,092 1,602,148 6 Bihar 8,681,800 4,648,799 4,033,001 7 Chandigarh 808,515 450,122 358,393 8 Chhattisgarh 4,185,747 2,166,775 2,018,972 9 Dadra & Nagar Haveli 50,463 29,834 20,629 10 Daman & Diu 57,348 28,906 28,442 11 Delhi 12,905,780 7,085,147 5,820,633 12 Goa 670,577 346,703 323,874 13 Gujarat 18,930,250 10,067,806 8,862,444 14 Haryana 6,115,304 3,310,965 2,804,339 15 Himachal Pradesh 595,581 331,867 263,714 16 Jammu & Kashmir 2,516,638 1,383,274 1,133,364 17 Jharkhand 5,993,741 3,205,441 2,788,300 18 Karnataka 17,961,529 9,249,960 8,711,569 19 Kerala 8,266,925 4,017,332 4,249,593 20 Lakshadweep 26,967 13,940 13,027 21 Madhya Pradesh 15,967,145 8,412,559 7,554,586 22 Maharashtra 41,100,980 21,941,919 19,159,061 23 Manipur 575,968 286,681 289,287 24 Meghalaya 454,111 229,088 225,023 25 Mizoram 441,006 226,383 214,623 26 Nagaland 342,787 187,425 155,362 27 Orissa 5,517,238 2,911,600 2,605,638 28 Pondicherry 648,619 323,258 325,361 29 Punjab 8,262,511 4,468,449 3,794,062 30 Rajasthan 13,214,375 6,993,371 6,221,004 31 Sikkim 59,870 32,710 27,160 32 Tamil Nadu 27,483,998 13,869,415 13,614,583 33 Tripura 545,750 278,587 267,163 34 Uttar Pradesh 34,539,582 18,407,899 16,131,683 35 Uttaranchal 2,179,074 1,181,334 997,740 36 West Bengal 22,427,251 11,849,976 10,577,275

Source: Census of India 2001Note : - Includes estimated population of Paomata, Mao Maram and Purul Sub-division of Senapati district of Manipur.Note: @ The total population and rural population include estimated population of 127,108 for Mao Maram, Paomata and Purul sub-divisions of Senapati district of Manipur. India’s population without the estimated population of these areas is 1,028,610,328 (532,156,772 males and 496,453,556 females)

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Posted in: Geography of India , gk , Indian Economy