Finance Commission Current Affairs - 2019

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Cabinet approves extension of term of 15th Finance Commission

Union Cabinet chaired by Prime Minister Narendra Modi has approved extension of term of 15th Finance Commission (XV-FC) up to 30 November 2019. This will enable FC to examine various comparable estimates for financial projections in view of reforms as well as new realities to finalise its recommendations for period 2020-2025.

The government has also broadened ambit of FC’s recommendation to include funds for defence and internal security.

Key Highlights

Background: 15th Finance Commission has been constituted by President on 27 November 2017 in pursuance of clause (1) of Article 280 of Constitution of India and Finance Commission (Miscellaneous Provisions) Act, 1951. FC was to submit its Report on basis of its Terms of Reference (ToR) by 30 October 2019, covering a period of 5 years commencing from 1 April 2020.

Reason for Extension:

The constitution of 15th FC has been in backdrop of various major fiscal and budgetary reforms introduced by Union Government in past 4 years such as closure of Planning Commission (PC) and its replacement by NITl Aayog (National Institution for Transforming India), removal of distinction between Non-Plan and Plan expenditure, advancing budget calendar by 1 month and passing of full budget before commencement of new financial year i.e. on 1 February, introduction of Goods and Services Tax (GST) from July 2017 and New Fiscal Responsibility and Budget Management (FRBM) architecture with debt and fiscal deficit path.

ToR of FC takes into account above fiscal and budgetary reforms. The task of determining expenditure and receipts of Union and State governments based on which FC shall make its recommendations is time consuming, as checks for data consistency across time and data sets become challenging.

About Finance Commission

FC is constituted by President under Article 280 of Constitution of India. It is constituted to give recommendations on distribution of tax revenues between Union and the States and amongst States themselves.

XV FC:

It was constituted by Presidential Order on November 2017 under the Chairmanship of N. K. Singh.

It will decide formula for devolution of revenue/funds between Centre and States, for a 5 year period– April 2020 to March 2025.

RBI Governor bats for Permanent Status to Finance Commission

Reserve Bank of India (RBI) governor Shaktikanta Das called for permanent status to Finance Commission.  RBI Governor Shaktikanta Das is also the member of the fifteenth finance commission.

Necessity of the Permanent Status

  • The permanent status will ensure consistencies between finance commissions so that there is some certainty in the flow of funds to states.
  • The permanent status will also provide for continuity between the successive finance commissions.
  • The permanent status will also provide for the finance commission to function as a leaner entity in the intervening period until the next finance commission is set up in a full-fledged manner.
  • The establishment of the finance commission through permanent status will also enable it to address issues arising from the implementation of the recommendations of the finance commission during the intervening period.

The RBI governor also called on for a robust expenditure planning without compromising on fiscal consolidation as fiscal federalism gathers momentum in the era of uniform goods and services tax (GST). He said that it is equally important to undertake robust expenditure planning based on a ‘commonly agreed expenditure code’ to address the socio-economic challenges without diluting the goals of fiscal consolidation.