Finance Commission Current Affairs - 2020

Fifteenth Finance Commission meets to discuss Health Sector and Fiscal Consolidation

On May 21, 2020, the Fifteenth Finance Commission met to discuss health sector and fiscal consolidation in the country.

Highlights

A high-level group was constituted by the Finance Commission on health sector. The group had submitted its report August 2019. Some of its recommendations were incorporated in the first report of the Finance Commission for the year 2020-21. The group has now been asked to recommend measures to contain the spread of COVID-19.

Role of the Group

The group will create a road map of fiscal consolidation for the GoI for the fiscal years 2021-22 to 2025-26. The group will focus on the extraordinary situation caused by COVID-19 and its economic impacts.

Now, there is a necessity to reassess the original recommendations made by the Commission especially in the health sector. The fiscal consolidation will mainly focus on medical equipment, hospital infrastructure, etc.

Fifteenth Finance Commission

The Fifteenth Finance commission recommended that the vertical devolution be reduced from 42% to 41%. Vertical devolution is the share of tax revenue that is shared by the centre with the states.

This Finance Commission had added demographic performance as new parameter in framing vertical devolution. The additional criterion of demography was included to adopt the population data from 2011 census.

About FC

The Finance Commissions are constituted under Article 280 of Constitution of India. It is constituted by the President of India every fifth year. The recommendations made by the Finance Commission are advisory in nature. The FC makes recommendations for a duration of 5 years

GoI releases Rs 6,195 crores of funds to 14 states

On May 11, 2020, the Government of India released Rs 6,195 crores to 14 states. This is the second equated monthly installment of Post Devolution Revenue Deficit.

Highlights

The grant allocated to the states will act as additional source of income to the states. The grant was recommended by the 15th Finance Commission. The Central Government under the grant allocated Rs 1,276 crores to Kerala, Rs 952 crores to Himachal Pradesh, Rs 638 crores to Punjab, Rs 631 crores to Assam, Rs 491 crore to Andhra Pradesh, Rs 417 crore to West Bengal and Rs 423 crore to Uttarakhand.

Significance

The grant will help the states make preventive and mitigation measures to contain COVID-19. The funds will be used for sample collection, quarantine facility, screening and setting up of additional testing laboratories. The funds will also be used for purchase of PPE (Personal Protection Equipment), thermal scanners, air purifiers, ventilators, consumables in government hospitals.

Revenue Deficit

The revenue deficit covers the gap between revenue and expenditure of a state. According to Fiscal Responsibility and Budget Management Act, 2003, the states should maintain revenue deficit of zero. According to the Constitution of India, state cannot raise a loan without consent of the Centre. This is why, the Kerala Government in 2019 couldn’t claim the flood relief grants from Saudi Arabia. The centre did not permit.