NK Singh Current Affairs

15th Finance Commission forms constitutes advisory council over terms of reference issue

The Fifteenth Finance Commission (FCC) headed by NK Singh has constituted Advisory Council to advise and assist Commission on issue or subject related to Terms of Reference (ToR) to quell strong opposition from some states over 2011 census. The council comprises Arvind Virmani, former chief economic advisor, Surjit S Bhalla, Sajjid Chinoy, Neelkanth Mishra, Sanjeev Gupta, and Pinaki Chakraborty.

ToR of Advisory Council

It will also assist the commission in preparation of any paper or research study which would enhance Commission’s understanding on issues containing in its ToR. It will also help commission in broadening its ambit and understanding to seek best national and international practices on matters pertaining to fiscal devolution and improving the quality and reach and enforcement of its recommendations.

Comment

The council’s role is advisory in nature and it cannot tweak on its own ToR of the 15th Finance commission. Any change in ToR will be made by Central Government with assent of President. The setting up of council by FFC will also serve to ease pressure on Centre over ToR. Some southern states have claimed that progressive states are ones stand to lose if FFC follows its ToR and takes 2011 census as basis for the devolution of central funds, instead of 1971, that was adopted earlier.

Background

Finance Commission is constitutionally-mandated body established once every five years by President to devise a formula for distributing net tax proceeds between centre and states as well as among states and local bodies. The recommendations of 15th Finance Commission (FFC) will come into effect from 1 April 2020.

The ToR of 15th Finance Commission have drawn protests from many states, especially from southern ones, over its mandate to use 2011 Census data over 1971 Census data for resource allocation.

The ToR of FFC as decided by centre have been criticized by southern ones, as being against spirit of cooperative fiscal federalism. The centre has mandated toFFC that population data for determining states’ share of tax revenues should be based on the 2011 Census, rather than the earlier practice of using the 1971 Census.

Issue with 2011 Census: Southern states, as well as states such as Punjab and Odisha have succeeded in reducing their population growth rates in recent decades while growth rates of most northern states including Uttar Pradesh and Bihar have remained high. Southern states allege that if FFC uses 2011 Census data, more resources will be transferred to northern states, thus penalizing states that have succeeded in controlling population.

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Government constitutes 15th Finance Commission under chairmanship NK Singh

The Union Government with the approval President of India has constituted 15th Finance Commission which will make recommendations for the five years commencing 1 April 2020 till 31 March 2025.

The commission will recommend devolution of shareable central taxes to States. It will also review several important aspects of federal fiscal finance. It will make its report available by 30th October 2019.

Composition of Commission

NK Singh, former bureaucrat and ex-Member of Parliament will be Chairman of 15th Finance Commission. Its other members are Shaktikanta Das, Former Secretary Economic Affairs; Dr Anoop Singh, Adjunct Professor of Georgetown University. Besides, Dr Ashok Lahiri, Chairman of Bandhan Bank and Dr Ramesh Chand, NITI Aayog Member will be the Part-time its members. Arvind Mehta will be Secretary to the Commission.

Terms of Reference of Commission

The Commission will make recommendations on distribution of net proceeds of taxes between Centre and States, the principles which should govern grants-in-aid of revenues of States out of Consolidated Fund of India. It will also suggest measures needed to augment Consolidated Fund of State to supplement resources of Panchayats and Municipalities in State on basis of recommendations made by Finance Commission of State.

It will also review current status of finance, debt levels, cash balances, deficit and fiscal discipline efforts of Centre and States and recommend fiscal consolidation roadmap for sound fiscal management. While making its recommendations, it will look at resources of Central Government and State Governments for five years commencing on 1st April 2020 on basis of levels of tax and non-tax revenues likely to be reached by 2024-25.

It is imperative for commission to examine implications of GST on finance of the Centre and states. It will look at impact of GST, including payment of compensation for possible loss of revenues for 5 years. It may also consider proposing measurable performance-based incentives for States, at appropriate level of government.

Month: Categories: India Current Affairs 2018

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