Bushan Lal Jalali
Federal political system provides independent financial control to the Union as well as the State Government so that they are able to perform their exclusive functions. For the same objective the Constitution of India under Article 280 has made elaborate provisions i.e. setting of Finance Commission as a Quasi Judicial Constitutional body to recommend President of India certain measures relating to devolution of Union Divisible Pool of Taxes ( excluding Cess & Surcharges) to the States and the Union Territories (with Legislators ). The Finance Commission ‘s recommendations which are generally accepted by the Government until there is some cogent reason are for a period of 5 years. Accordingly 14th Finance Commission recommendations are in vogue upto 31.03.2020. For period from 01.04.2020 to 31.03.2025 , 15th Finance Commission has been set up by the President headed by N.K.Singh, former Revenue Secretary and MP. The Commission has been given the Terms of Reference i.e the points / areas on the basis of which the commission has to study,analyse, observe, Review and recommend. These are purely for balancing Vertical and Horizontal Imbalances within Union and the States and amongst the States. The detailed report by the commission is required to be submitted by 31.10.2019. Some of the Terms of References have been initially objected to by some Southern States and later joined by Delhi and Punjab too. The points of dispute referred to by these complainant states of Kerala, Andhra Pradesh, Tamil Nadu, Punjab, Delhi, Puduchery are mainly Population Criteria of 1971 Census instead of 2011 Census, Whether Revenue Deficit Grants to be provided or not etc. Some the apprehensions/ grievances expressed by a few states/UTs against a few Terms of references are as follows:
Population Data based on 2011Census to be used instead of 1971 Census.
The Southern States claim that the one of the Criterion for Devolution shall be population and these states have successfully implemented Family Planning Programmes with the result their population growth was much lower as compared to Northern States , hence claim that they will get disadvantaged instead of rewarded.
The 15th FC will consider measures to augment Consolidated Fund of States to supplement its resources Local Bodies viz Panchayats, Municipalities.
The complainant states/UTs want that the words WHICH ARE IN NEED OF ASSISTANCE should be incorporated in this Term of Reference
Commission may also examine whether Revenue Deficit grants be provided at all.
The complainant states desire that this ToR should be deleted so as to continue having Grants in aid for Revenue Deficits.
The 15th FC will consider resources of Union and States for the five years commencing April 1, 20120, on the basis of ,the levels tax and non tax revenue likely to be reached by 2024-25.
The states desire that the basis should be as on the date of report not on continuous basis for 5 years.
The FC to consider impact on Unions Fiscal situation following enhanced tax devolution to states, compiled with the continuing imperative of the National Development Programme, including New India 2022.
The states in question want this ToR to be deleted.
The FC to study impact of GST, including payment of compensation for possible loss of revenues for five years and abolition of a number of Cesses on the finances of Union and States.
The States don’t want to have the reference or link of GST compensation with the devolution of taxes.
In the light of aforesaid apprehensions , steep unprecedented hike in Union Taxes devolution from 32% to 42% by 14th Finance Commission and consequent modifications for funding of Central Sponsored Schemes and State Specific Schemes, some of the allegations need to be addressed while rest appear to be exaggerated, hyped as their negative impacts have been covered by other Terms of References.
The Government which has initiated/declared some enormous projects like doubling farmers income within five years, Infrastructure, Railways, Commitments at International Climate Change Summit, Renwable Source Energy Development, Improvement of Human Development Index viz, Health, Clean Energy in Rural India, Sanitation, Education, Women Empowernment along with development of world class Smart Cities. Further , the Union also needs heavy investments for Defence and Internal Security in view of growth of global, regional and internal terrorism and multi border disputes. Fifteenth FC need to smartly study and recommend the nature of Fiscal Deficits, while Revenue Deficit need to be condemned, curtailed drastically if not eliminated. Populist measures like freebies and loan wavers and intentional revenue losses due to Vote Bank politics should attract disfavor in the formula for devolution of Union Taxes.
While States, like, Assam, Goa, HP, Odisha, Punjab,West Bengal, Kerala, Karnataka, AP, TN & Puduchery which have implemented Family Welfare Programme successfully and population share declined from 22.1% to 18.16% from 1971 to 2011 need to be incentivized and at the same time in other states we cannot deprive those states from the justifiable share of taxes. Hence 2011 Census should be basis as already taken by 14th FC for criterion of Demographic Change and joyfully accepted by the then complainant states too . Moreover , the 15th FC has been aptly asked to propose measurable performance based incentives for efforts and progress made by states in moving towards replacement rate of population growth.
Decisions in GST Council comprising of All states and the Union by majority vote is an example of true cooperative , competitive federalism. While accepting adoption of GST pan India the commitment made by the GST Council to compensate the revenue loss making states for five years need to be considered while devolution of Union Pool otherwise the Union List of Expenditures, development projects and New India 2022 will be a mere slogan if the taxes are not judiciously levied and distributed.
One more bone of contention in the Terms of Reference of 15th FC is that to see whether the revenue deficit grants to States should be provided for or not? For this the readers must know what is Revenue Deficit. It is when Revenue Receipts are less than Revenue Expenses, it is Revenue Deficit. Revenue Receipt comprises of Tax Revenue and Non Tax Revenue Receipts. ( Tax Revenue Recipts: Direct and Indirect Taxes; Non Tax Revenue Receipts: Profits & Dividends from PSUs, Interest receipts of government from its loans forwarded inside state/country or outside state/country, Fiscal services: stamps, currency printing, coinage , general services: power, irrigation, banking, drinking water, insurance , community services etc. fees, penalties, grants received) Revenue Expenditure: Interest, Salaries, subsidies,defence, postal deficit, Law & Order police & paramilitary, expenditure on social services, education health care, poverty alleviation, Grants ).
So in this context there are some states like a few in North East where avoiding a Revenue Deficit is a challenge and the country needs to take some path breaking decisions like taking out Bamboo from protected item to a commercial item.For other states to be financially disciplined State there should not be any reason not to have the equilibrium. Moreover under the landmark statute of FRBM Act of 2003 supported by all the parties, all states are legally bound to minimize the Government expenditure therefore Shri N.K. Singh should take a judicious view in the spirit of required fiscal discipline eclipsing populism.
Last but not the least , it is ultimately the True End Use of Funds, adherence to Time Norms, Transparency , unbiased, hassle and corruption free delivery which matters the most rather than quantum of Taxes.
(The author is former Asstt. Gen. Manager, State Bank of India)
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