The central government has significantly increased tax devolution to states in October, providing a total of Rs.1.78 lakh crore. This includes an advance installment of Rs.89,086.5 crore, aimed at enhancing capital spending and supporting development projects during the festive season, as announced by the finance ministry.

Among the major states, Uttar Pradesh received the largest share with Rs.31,962 crore. Other allocations include Rs.17,921 crore for Bihar, Rs.13,987 crore for Madhya Pradesh, Rs.13,404 crore for West Bengal, and Rs.11,255 crore for Maharashtra.

For the financial year 2024-25, the government plans to allocate approximately 32.5% of central taxes to the states. This is below the 41% recommended by the 15th Finance Commission, as outlined in the Union Budget Estimate for FY25. The reduced share is attributed to cess and surcharges that the Centre imposes, which are not included in the devolution to states. Concerns have been raised by several states about receiving less than what the Finance Commission recommended.

This marks the second time this financial year that the Centre has provided an advance monthly installment; the first occurred in June, when Rs.1.39 lakh crore was frontloaded to states.

State capital expenditure is projected to have decreased by 17% year-on-year in the first four months of the current financial year, continuing a trend of declining public sector capital spending.

Provisional estimates for FY24 suggest that states’ share of central taxes is around 32.6%. While the provisional amount for FY24 was Rs.11.3 lakh crore, the Budget Estimate for FY25 indicates an increase to Rs.12.5 lakh crore allocated for states.

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