Union Govt Releases ₹1.78 Lakh Crore Tax Devolution to States, Including Advance Instalment Ahead of Festive Season

On October 10, 2024, the Union Government made a significant financial decision by releasing a total tax devolution of ₹1,78,173 crore to various State Governments. This release includes an advance instalment of ₹89,086.50 crore, provided ahead of the festive season, in addition to the regular instalment due for October 2024. This move aims to empower states, boost capital expenditure, and ensure that welfare programs and developmental initiatives continue without hindrance during the crucial festive period.

Why is this such an important development, and how will it impact state finances? Let’s break down the details of this substantial fund release and what it means for the states and their citizens.

The Breakdown of ₹1.78 Lakh Crore: What’s Included?

Advance Instalment for October 2024

The ₹1,78,173 crore devolution includes one advance instalment of ₹89,086.50 crore, a pre-emptive move ahead of the festive season. Typically, the Union Government releases monthly instalments as part of the tax devolution process. However, this time the government decided to release additional funds to ensure that states can accelerate their capital spending, and manage social welfare programs with greater ease.

Why the Advance Instalment?

With the festive season around the corner, there is a heightened demand for funds across various sectors in the states. Festivals often lead to increased economic activity, infrastructure development, and government-led welfare programs. The advance instalment ensures that states are well-equipped to handle the spike in spending needs and have the necessary liquidity for both short-term and long-term projects.

State-wise Allocation of Funds

The tax devolution is distributed across all states, ensuring that every region gets its due share based on various parameters such as population, development needs, and fiscal capacity. The table below outlines the specific amounts released to each state in October 2024:

Largest Beneficiaries

• Uttar Pradesh received the highest allocation at ₹31,962 crore, reflecting its population size and the substantial developmental needs of the state.
• Bihar was allocated ₹17,921 crore, marking it as another large recipient, crucial given the state’s focus on welfare programs and infrastructure development.
• West Bengal received ₹13,404 crore, supporting its welfare and capital expenditure programs during this festive period.

How Will the Funds Be Used?

Accelerating Capital Spending

A key objective of this tax devolution is to encourage states to accelerate capital spending. Capital expenditure typically includes investments in infrastructure like roads, bridges, schools, and hospitals. Such investments not only improve long-term economic growth but also create immediate employment opportunities, which is particularly important during the festive season when demand for goods and services spikes.

Supporting Development and Welfare Initiatives

The Union Government’s decision to release an advance instalment also aims to support state-run welfare programs. These could range from food subsidies, health programs, housing projects, to rural employment schemes. With the additional funds, states can ensure that their welfare schemes remain uninterrupted, especially at a time when people depend on government support the most.

Boosting State Economies During the Festive Season

Festivals in India are not just about celebrations; they are a time of significant economic activity. From shopping to travel, construction to services, many sectors of the economy experience a boost during this period. The Union Government’s decision to release additional funds ahead of the festive season is designed to stimulate this economic activity further, ensuring that states can meet increased demand without budgetary constraints.

Why Does This Matter for States?

Liquidity Support

The devolution provides states with much-needed liquidity. With enhanced liquidity, state governments can not only meet immediate expenses but also invest in projects that have long-term benefits. The advance instalment provides breathing room for states that might otherwise struggle to balance their budgets during a period of increased spending.

Fiscal Stability and Planning

With advance payments, states can plan their fiscal activities better. They are no longer solely dependent on the regular instalments, which allows for better forecasting and financial management. It ensures that states are better prepared to fund critical projects, both in terms of infrastructure and social welfare.

Bridging Development Gaps

India’s states are at different levels of development. While some states like Maharashtra and Tamil Nadu are relatively developed, others like Bihar and Uttar Pradesh still face significant developmental challenges. This tax devolution helps bridge the gap by allocating more funds to states with higher developmental needs, allowing them to invest in projects that can lift the standard of living for their populations.

Key Highlights of the Devolution Strategy

Equitable Distribution of Resources

The Union Government follows a transparent and equitable formula to distribute tax devolution. Factors such as the state’s population, income levels, and specific developmental needs are taken into account. This ensures that states like Uttar Pradesh and Bihar, which have large populations and greater developmental needs, receive more funds compared to smaller states like Goa and Sikkim.

Focus on Development and Growth

This round of tax devolution is particularly focused on growth and development. With an emphasis on capital expenditure, states are encouraged to invest in long-term projects that will drive economic growth. At the same time, welfare schemes will continue to be funded, ensuring that no citizen is left behind during this period of heightened economic activity.

Fiscal Federalism in Action

The tax devolution process is a testament to India’s system of fiscal federalism. By sharing a portion of its tax revenue with the states, the Union Government enables states to take charge of their own developmental trajectory. This system ensures that states are empowered to cater to their specific needs while contributing to the overall growth of the nation.

Conclusion: A Festive Boost to State Economies

The Union Government’s decision to release ₹1.78 lakh crore in tax devolution, including an advance instalment, is a timely move that aligns with the upcoming festive season. This financial boost will help states accelerate their capital spending, support welfare programs, and drive economic growth. It underscores the importance of fiscal federalism in India, where both the Union and state governments work together to promote development.

With the release of these funds, states are now better equipped to meet the demands of their citizens, ensuring that the festive season is a time of growth and prosperity for all.