N K Singh 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.

Why India needs watch-dog for Fiscal Discipline?

The Chairman of the Fifteenth Finance Commission N K Singh has pitched for a fiscal council to enforce fiscal rules and better manage public debt.

Why Fiscal Council?

  • For state government liabilities, Article 293 (3) provides a constitutional check over borrowings. But there are no such restrictions on the Centre Hence there is a need for an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.
  • An institutional mechanism for sound fiscal practices will bring in transparency, instil confidence among domestic and foreign investors and improve policy outcomes.
  • An institutional mechanism will also prevent practices such as accounting jugglery to show the Centre’s finances in better shape, undermining the sanctity of the budget numbers.
  • Even the CAG has underscored the need for proper disclosures, saying that budgets often understate fiscal deficits by misusing accounting loopholes.
  • The Fiscal Responsibility and Budget Management (FRBM) Review Committee had also recommended setting up an autonomous council. Even the 13th and 14th finance commissions had favoured the setting up of a Council to keep tabs on budget forecasts and their veracity.

India’s debt-to-GDP ratio of the states and the Centre combined is also way too high at 70%. An independent Fiscal Council will streamline the fiscal discipline.

Recommendation of Fiscal Responsibility and Budget Management Review Committee

The Fiscal Responsibility and Budget Management Review Committee had outlined the functions like Preparing multi-year fiscal forecasts, recommending changes to fiscal strategy, improving the quality of fiscal data and advising the government if conditions exist to deviate from the fiscal target and advising the government to take corrective action for non-compliance with the Bill for the fiscal council.