Post Devolution Revenue Deficit (PDRD) Grant

Why in news?

• The Department of Expenditure, Ministry of Finance on Thursday released the second monthly installment of Post Devolution Revenue Deficit (PDRD) Grant of Rs 9,871 crore for the year 2021-22 to 17 States.

About the Grant

• The Centre provides the Post Devolution Revenue Deficit Grant to the States under Article 275 of the Constitution.
•  The grants are released as per the recommendations of the Finance Commission in monthly instalments to meet the gap in Revenue Accounts of the States post-devolution.
• The 15th Finance Commission has recommended Post Devolution Release Deficit grants to 17 States.
• The States recommended for Post Devolution Revenue Deficit Grant are Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Karnataka, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand and West Bengal.
• The eligibility of States to receive this grant and the quantum of grant was decided by the Commission based on the gap between assessment of revenue and expenditure of the State.

About these grants:

• The Finance Commission is a constitutional body set up by the President of India, every five years or earlier to decide the share of the Union government and state governments in the divisible pool of tax revenue.
• The Commission further recommends the share of funds and grants to be transferred to local bodies.
• In the Union Budget, these transfers are called ‘Finance Commission Grants’ and ‘Other Transfers’.
• The Finance Commission Grants are primarily divided into four sub-heads.
  • Grants for rural local bodies: The three-tier model of governance envisioned in the Constitution assigns clear roles and responsibilities to Gram Panchayats. The Finance Commission recommendations ensure that these local bodies are adequately funded. In fact, nearly half of the Finance Commission Grants in Union Budget goes to village local bodies.
  • Grants for urban local bodies: In addition to units of self-governance at the village level, the Constitution also envisages cities as units of self-governance. Urban local bodies like municipal councils receive the largest chunk of Finance Commission Grants after Rural Local Bodies and Post Devolution Deficit Grants to states.
  • Assistance to SDRF: The central government also provides funds to State Disaster Relief Funds in addition to funding the National Disaster Management Authority (NDMA). The assistance to state government’s disaster relief authorities is provided as per the recommendations of the Finance Commission.
  • Post devolution revenue deficit grants: About a third of the total revenue collected by the Centre is directly transferred to states as their share in the divisible pool. However, the Finance Commission also provides a mechanism for compensation of any loss incurred by states, which is called post-devolution revenue deficit grants. This Finance Commission Grant forms the second largest chunk of Finance Commission transfers after the assistance to local rural bodies.

Prelims Question:

Consider the following statements on Post Devolution Revenue Deficit Grant:
1.It is given to all states to bridge their revenue deficits.
2.It is given as per the recommendations of Finance commission.
Which of the statements given above is/are correct?
(a)1 only
(b)2 only
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to Prelims question