Protecting Federal Autonomy
and
Safeguard interests of states
Vanam
Jwala Narasimha Rao
Millennium
Post, New Delhi (08-02-2019)
Telangana Today (11-02-2019)
Telangana Today (11-02-2019)
The
Fifteenth Finance Commission of India, whose recommendations will come into effect from April 1, 2020
to March 31, 2025, will be visiting the state from February 18 to
February 20, to have discussions with Chief Minister and top officials of state
Finance Department ostensibly to decide on state’s requirement of devolution of
funds. To what extent state’s requirements are really taken into consideration and
met on various aspects is however an unanswered question. In reality it has to
play a crucial role in Indian federal system and should usher in a new era of need based fiscal
federalism. For five years the state’s financial and economic conditions as
well as fiscal plans will be richly influenced by the recommendations of 15th
Finance Commission.
It is time that the Finance Commission thinks
of leveraging the Indian Economy and changes its role in such a way that its
functioning is not a mere routine affair. Despite different Governments at the
National and State Level since independence, there has not been a qualitative
change in the approach of Finance Commission. It’s high time that the
Commission introspects on this. The people are in an agitating mood as they are
totally disappointed with the policies of Union Governments lead by either BJP
or Congress Party that were in power alternately. The two political systems have
miserably failed the nation.
The
broad fiscal policy lies with the Government of India. Whatever they are
supposed to devolve, they have instead centralized. As suggested by CM in a
meeting of NITI Ayog, the centre should not come in the way of growing states.
The growth of the state should be considered as the growth of country. Disincentivising
growing states is not a healthy practice. It’s alright if the poor states are
helped but the states which provide maximum income to the country are also to
be equally encouraged.
Share in the tax devolution to the
states whose percapita income is higher, is reduced, by labelling them as rich
states. For instance, for Telangana state which has a surplus budget, the
Finance Commission decided to give 2.4375% of share in the tax devolution, whereas
for AP the devolution has been put at 4.305%. Accordingly Telangana in 2018-19
financial year got Rs. 18,560 Crores where as AP benefited with Rs. 32,787
Crores. This would continue even in 2019-20 financial year also. Telangana will
get Rs. 20,583 Crores and AP will get Rs. 36,360 Crores. The northern state of Uttara Pradesh gets much
higher at Rs. 1,15,682 crores. Even if we take the percapita tax devolution in
to consideration Telangana’s will be much lower than that of AP. This means, Telangana which is one among the
five-six states that contribute maximum income to the country is not getting
its due share in the tax devolution.
Even
for meager funds lots of conditions are
imposed by the center. The fiscal relationship that should exist between union
government and state government is conspicuously absent. Its unfortunate that
the policies of devolution is in a manner of dishonoring state governments and
states’ powers than respecting their views.
The role of the Finance Commission with
specific reference to its visits to states with pre-occupied notions needs to
be reformed. They come with pre-occupied designs and Terms of Reference (ToR)
which in fact should be done after they complete their visit, discuss with
state governments and take their views. The ToR, however, are listed
in the Presidential Order appointing the Commission. The Commission of course has
no role in the framing of the ToR. In fact the core functions of the Finance
Commission are listed out in article 280 of the Constitution and they are
reproduced verbatim in the ToR. What is a matter of concern is ToR stipulates
certain considerations to be taken into account while making its
recommendations and a number of other matters are referred to the Commission in
the interest of sound finance. The considerations are invariably biased in
favour of the Center. Its
better if the Finance Commission becomes a policy formulating body than a mere
recommendatory institution. Devolution is the right of the states. Lot of
diversity is there with reference to states’ requirements.
The
Finance Commission to be appointed once in five years, as an autonomous body, was
first established by the President of India on 22nd November 1951
under Article 280 of the Constitution. The commission consisting of a Chairman and four other members is constituted
to make recommendations to the president about the distribution of the net
proceeds of taxes between the Union and States and also the allocation of the
same among the States themselves. It is also under the domain of the Finance Commission
to define the financial relations between the Union and the States. The President
lays the recommendations of the Finance Commission before each House of the
Parliament. As
of now there have been fifteen finance commissions. The recent one-the 15th
Finance Commission was constituted in November 2017 and is chaired by NK Singh,
a former member of the planning commission and a retired IAS officer.
The Finance
Commission also determines the principles of governing the grants
in aids of the revenues of states out of the consolidated fund of
India. It also distributes proceeds of Income-tax between the union and the
states. But taxes on the payments of the central government are attributable
only to the union territories. It makes recommendations to the President of India
as to the measures needed to augment the fund of a state to supplement the
resources of the Panchayats and Municipalities in the state on the basis of
recommendations made by the finance commission of the state.
It is
however desirable that the Finance Commissions mainly
focuses on the financial relations between the State government and the Central
government. These recommendations are expected in such a
way that it ensures a progressive increase in the share of the state
governments in the proceeds of the income tax. They should also recommend for
increase gradually the amount of grants-in-aids to be given to the states. If this is done systematically it
would have resulted in considerable degree of financial autonomy of
states for the proper functioning of the cooperative federation. In
addition to the Constitutional provisions, to bridge the fiscal gap between the
Centre and the States as well as ways and means of sharing resources between
the Union and States, the Finance Commission is expected to serve as an
institutional framework to facilitate Centre-State Transfers.
The mandate of the
present Finance Commission as defined in the ToR covers to recommend a fiscal
consolidation roadmap for sound fiscal management; assess the impact of Goods
and Service Tax (GST) on finances of the Centre and States; review the need for
revenue deficit grants to states; review the need to increase in tax devolution
of the 14th Finance Commission; review conditions on state
borrowings; providing performance based incentives to states etc. among others.
What is of concern is that the 15th Commission
has been asked to look into the impact of higher tax devolution recommended by
the 14th Finance Commission.
Incidentally,
right from the first Chairman of the first Finance Commission, till today, more
than half of them were the politicians belonging to the ruling party that was
in power at the centre. Even the Chairman of the 15th Finance
Commission, NK Singh too became a Rajya Sabha Member after retirement and has
been a senior member of BJP.
What
else can we except from them except safeguarding interests of the party in
power. The Finance Commission should not give scope to such doubts. Let us hope
that the 15th Finance Commission thinks in this direction and will
not do any injustice to states. And hence, it’s time that the style of Finance
Commission transforms and reforms.
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