15th Finance panel could set tailored fiscal roadmaps for states
The recommendations of the FFC will be applicable from the financial year 2020 to 2025
Last Updated at August 9, 2017 15:39 IST
The Fifteenth Finance Commission (FFC), whose composition and terms of reference are expected to be announced by the end of this year, may be tasked with recommending roadmaps for states to meet their debt level targets by the end of the fiscal year 2025.
The Commission, like the fourteen before it, will have to recommend ways on devolving the divisible pool between the Centre and states and among the states.These will be its main terms of reference as mandated by Article 280 of the Constitution.
The FFC may also be tasked with suggesting the debt-gross state domestic product (GSDP) levels of each state and combined debt-gross domestic product (GDP) levels for all states. Not only that, just like the Fiscal Responsibility and Budget Management panel has suggested a roadmap for the Centre to reduce its debt-GDP ratio to 40 per cent by FY2023, the FFC may be formulating a roadmap for states, Business Standard has learnt.
The recommendations of the FFC will be applicable from the financial year 2020 to 2025. Sources say that the draft terms of reference (TORs) have already been drawn up and that these could be tweaked.
Additionally, sources close to the matter also said that there is a major debate going on in the higher levels of the government on whether the FFC should use the 2011 census for its work. Till the fourteenth finance commission, the 1971 census was used, though it recommended distribution of grant to states for local bodies using the 2011 census.
“If the FFC is recommending a fiscal roadmap for states, it will have to look at a lot of parameters, including size, population, migration, private and public investment, social spending, education, health, mortality, among others. It would need to look at the latest available data,” said an official aware of the developments, adding that the issue was being discussed among policymakers in the central government.
Also, while the FFC will be tasked with studying the impact of the nationwide Goods and Service Tax (GST), it may treat the tax regime as part of the divisible pool to be devolved to states and the Centre, and not as a separate issue, the official quoted above said.
As reported earlier, FFC may be tasked with suggesting ways to provide more fiscal space and resources for states to deal with agriculture crises. Such a move would come in the backdrop of large scale protests by farmers around the country. Five states have announced farm-loan waivers, namely Uttar Pradesh, Punjab, Karnataka, Telangana and Maharashtra, totalling roughly around Rs 2 lakh crore.
This has prompted concerns about their fiscal health and resources, which are already stretched due to the issuance of bonds under discoms restructuring.
Also, former parliamentarian, revenue and expenditure secretary N K Singh is being considered for the position of the chairman of the FFC and has emerged a front-runner.
The Finance Commission is set up every five years to suggest the rules which govern the distribution of tax proceeds among the Centre, states and local administrative bodies.
The Fourteenth Finance Commission was headed by former Reserve Bank of India governor Y V Reddy. It had recommended the devolution of an unprecedented 42 per cent of the divisible pool to states during 2015-16 to 2019-20, against 32 per cent suggested by the previous commission.