Dinesh Kamath's Editorial 'All eyes on the Fifteenth Finance Commission' that was published in Newsband

All eyes on the Fifteenth Finance Commission

The Fifteenth Finance Commission will be recommending a fiscal road map and a sharing of resources between the Centre and the States. Former Revenue Secretary N.K. Singh has been appointed chairman of the Commission There will be consultations with stakeholders. Think tanks and academics will be consulted. The Commission has to submit its report by October 2019,

14th Finance Commission had recommended to raise the States’ share in the divisible pool of taxes to 42% from the previous 32% level, Prime Minister Narendra Modi had told Chief Ministers that although this meant less money at the Centre’s disposal, his government had decided to strengthen the States’ capacity

Taken together with its need for resources for essential spending in areas such as defence, security, infrastructure and climate change, the Centre seems to be seeking a rollback of the 42% share for States. The Centre is committed to compensating States for any revenue losses arising out of GST implementation till June 2022,

Commission’s mandate includes formulating performance-linked incentives for States on a range of desirable outcomes such as attaining a replacement rate in population growth, deepening the GST net and improving the ease of doing business.  

The finance commission has to take account of the damages caused by GST and the state of economy due to demonetisation effect.

According to the 14th Finance Commission’s recommendations, the States’ share in the divisible pool of taxes was raised from 32% to 42%, and if the centre is planning to rollback it then it might affect the state's internal expenditure in areas of education, health, etc. At most the centre could leave it at that level, if it’s not planning to further increase it. And with the GST clause added since the late 2016, the centre has promised to compensate the losses (if any) suffered by the states till 2022, the centre must have this fact in mind while working on the reshuffling the tax sharing rates.

Tricky policymaking would need co-operation from all stakeholders. States should be given more share to work on their own priority basis.

Centre's role reflects running with the hare and hunting with the hound approach as terms of reference of the 15th finance commission would in all probability pinch the financial prowess of the states as promised during implementation of GST. Prudent step would be to allow states to attain fiscal sovereignty and consolidation in the GST regime.