Dehradun: The Uttarakhand government on Monday sought appropriate compensation in accordance with the spirit of “Environmental Federalism” in view of the “Eco-Service Cost” of Uttarakhand from the 16th Finance Commission (FC), urging it to increase the weight prescribed for “forest and ecology” in Centre-state tax-sharing from 10 to 20% and in area category from 15 to 20%.
The state government also requested that special grants should be considered for the proper management and conservation of forests in the state.
These requests were made by chief minister Pushkar Singh Dhami on Monday, in a meeting with the chairman of the 16th Finance Commission, Arvind Panagariya and other members of the FC at the Secretariat here.
Panagariya, during a press briefing after the meeting, said the share of Uttarakhand in the Centre-State fund sharing under the Finance Commission is determined by the recommendations of the Finance Commission, which allocates a portion of the central taxes to each state based on specific criteria. “According to the 15th Finance Commission (2020-2026), the share of states in the central taxes was set at 41% of the divisible pool, and each state’s individual share is calculated using criteria such as income distance (45% weight), population (15%), area (15%), forest and ecology (10%), total fertility rate (12.5%), and tax effort (2.5%).”
He said, “The Uttarakhand government has urged FC to consider income distance (at 40%), population (15%), area (20%), forest and ecology (20%), Total Fertility Rate (state government has urged that it should not be used as criteria for tax devolution) and tax effort (2.5%). Uttarakhand has also urged that it be rewarded for fiscal discipline.”
Dhami earlier in the meeting presented the state’s stand in detail on the financial conditions, challenges and development needs of the state.
He said that due to over 70% of the total geographical area of the state being covered with forests, two major challenges are also being faced. “While on one hand, more expenditure has to be made for the conservation of forests, on the other hand, due to the prohibition of any other development activity in the forest area, ‘eco service cost’ also has to be borne. So, I request for giving appropriate compensation in accordance with the spirit of ‘Environmental Federalism’, increasing the weight prescribed for forest cover in ‘Tax-Transfer’ by 20% and giving special grant for proper management and conservation of forests in the state
Dhami said that in the last 25 years, Uttarakhand has made remarkable progress in the field of financial management like other areas. “After the establishment of the state, the state had to depend on external loans to develop its basic infrastructure. While on the one hand the state has achieved remarkable achievements on the basis of various parameters of development, the size of the budget has crossed one lakh crore rupees. In the SDG Index Report of the year 2023-24 released by NITI Aayog, Uttarakhand has emerged as the leading state among the states achieving the goals of sustainable development. The unemployment rate of the state has come down by a record 4.4 percent. In terms of per capita income, an increase of 11.33% has been registered, which is more than the national average”.
Dhami said that after the end of the ‘Industrial Concessionary Package’ in 2010, the state government is facing difficulty in the light of the ‘locational disadvantage’. “Due to difficult geographical conditions and other practical difficulties, the participation of private sector in important sectors like education and health is very limited in the hilly areas of the state. Due to this, special budget provisions have to be made for these sectors,” he said.
He said that Uttarakhand is a state highly sensitive to natural disasters. “The state needs continuous financial support to effectively deal with these disasters and for relief and rehabilitation work,” he said, also requesting FC to consider providing special grants for these special efforts of water conservation.
Dhami said that due to the rules implemented as a result of declaring Ganga as a national river, the possibilities of hydroelectric power generation in Uttarakhand have become limited. “The hydroelectric sector is not able to make the expected contribution to the economy due to various reasons, due to which there is a huge loss in the field of revenue as well as employment. I also urged GC to determine the amount of compensation for the affected projects and the related mechanism”, he said.
Dhami said that due to the ‘floating population’ coming to the pilgrimage sites, additional infrastructure has to be developed for transportation, drinking water, health, waste management and other services. “Keeping in mind the high cost of building infrastructure in the state due to complex geographical conditions, special assistance should also be provided to the state.
The chief minister said that along with tax effort, “fiscal discipline” should also be included as a component in the “devolution” formula for tax sharing in the norms under tax-sharing. “It would be reasonable to implement ‘Revenue Need Grant’ in place of ‘Revenue Deficit Grant’. “Due to the geographical structure of the state, both capital expenditure and maintenance costs are high. The credit-deposit ratio in the state is also low,” he said.
Panagariya said the per capita income of the state has increased. “Good work is also being done in the state towards reducing unemployment. In view of the difficult geographical conditions, the challenges faced by Uttarakhand and other hill states will be discussed at a wider level to find solutions to them. The 16th Finance Commission has set a target to make its report available to the Central Government by 31 October 2025”.