Chairman of 16th Finance Commission, Arvind Panagariya, on Tuesday encouraged the states to raise as much of their own revenue as possible to be fiscal self-reliant.

Raise As Much Revenue As Possible

He, however, asserted that the usual devolution of grants that is done to the states will continue.

"The Commission generally does encourage states to raise as much of their own revenue as possible. Ultimately this revenue itself is a function of the GSDP of the state, and more revenue means that the GSDP is larger, and a larger GSDP is desirable in its own right, because that's what leads to higher capital incomes," Panagariya told a press conference.

On the Commission's recommendation to bring resource-crunch Nagaland, which depends mostly on central funding, at par with the rest of the states, Panagariya said the special category status was related to the grants that were given by the erstwhile Planning Commission.

Since the Planning Commission no longer gives any grant, the special category status is not a factor, although there is some special treatment, he said.

In many schemes where other states get only a 60 per cent contribution from the central government, it is 90 per cent in Nagaland's case, Panagariya said.

"Not as much as one would like it to, but it (Nagaland) is raising some of its own revenue as well while a significant part is through the devolution and the grants-in-aid, etc," he said.

While the Commission is still in the information-gathering phase, the Chairman refrained from making detailed comments on Nagaland's specific proposals, emphasizing that recommendations would only be finalized after consulting all 28 states and would be submitted by October 2025.

The Commission chairman said that the state government proposed several critical recommendations including inclusion of certain cesses and surcharges in the divisible pool, which are fully retained by the central government, depriving states of potential revenue.

The state also proposed introducing a "disability index" to consider geographical and economic challenges specific to Nagaland and introduction of "capital deficit grants" alongside the traditional revenue deficit grants, he said.