HYDERABAD: Should the esteemed Finance Commission be made a permanent body? There’s nothing in the Indian Constitution that either indicates that the commission is temporary or prohibits its permanency. However, its chairman and members are changed, or rather constituted, for a five-year term and is tasked to prepare the Centre-state net tax revenue share for the ensuing five years.
Currently, the 15th Finance Commission (FC), headed by N K Singh and comprising four members and five consultants, has to submit its report by October 30, outlining the revenue share for April 2020-2025.
“The Constitution doesn’t have a permanent chairman and members. But that would be a problem as it could dilute its neutrality... The government shouldn’t politicise the institution,” M Govinda Rao, member of 14th FC and presently counsellor at Takshashila Institution, told Express.
Not all are on the same page. Last month, RBI Governor Shaktikanta Das underscored the need for continuity and consistency among recommendations of the commissions, which he said were inconsistent with one another, adopted different approaches regarding tax devolution, grants-in-aid and the issues of fiscal consolidation. A permanent team would ensure certainty in the flow of funds to states, he said.
Incidentally, Das was a member of the 15th FC, but resigned after he took charge as RBI Governor.
“If the state has a revenue disability and cost disability that has to be offset. Every commission recommends what’s appropriate. There’s a broad concept including unconditional transfers, which are given to enable states to offer minimum standard of service,” Rao said.
According to Y V Reddy, chairman of the 14th Finance Commission — which recommended a path-breaking rise in tax devolution from the Centre to states (from 32 to 42 per cent) leading to fiscal kneecapping for the Centre — having permanent members allows states to continuously engage with the government, which could ‘abdicate its discretion currently available in designing and implementing the specific purpose transfers.’
There’s a general consensus that the FC has been expanding considerably from being an arbitrator between the Centre and states to an architect of fiscal restructuring. States’ expenditure continues to be influenced by the Centre, as FC transfers account for the bulk of the Central transfers.
“If you look at it, FC has been evolving and it’s a work-in-progress. Basically, the objective is to offset the revenue disability and cost disability of states. In a country where there’s so much difference between the highest and lowest per capita income of states at 1:5, it’s impossible to assume there’s no disability. The objective is to ensure minimum standard of services,” Rao reasoned, adding, “They broadly indicate the revenue and cost disability of states so that comparable levels of services can be offered, but you can’t do it fully because of the extreme inequalities in the country.”