Context

Reserve Bank of India governor Shaktikanta Das called for a permanent status to Finance Commission and a robust expenditure planning without compromising on fiscal consolidation as fiscal federalism gathers momentum in the era of uniform goods and services tax (GST).

About

Background:

• Over past several decades, Finance Commissions have adopted different approaches with regard to principles of tax devolution, grants to be given to states and fiscal consolidation issues.
• While at one level, there has to be a framework for fresh and innovative thinking by every Finance Commission; at another level, there is a need to ensure broad consistency between Finance Commissions so that there is some degree of certainty in the flow of funds, especially to the states.
• This has become even more critical in the post GST scenario and there has been a demand to bring in continuity as well as change between Finance Commissions.
  
  

  Fifteenth Finance Commission The Government of India, with the approval of President of India, has constituted Fifteenth Finance Commission in pursuance of clause (1) of article 280 of the Constitution, read with the provisions of the Finance Commission (Miscellaneous Provisions) Act, 1951 w.e.f. 27th November, 2017. The Commission will make recommendations for the five years commencing on April 1, 2020. Shri. N.K.Singh is the head of 15th Finance Commission.

   

How this permanent status accord intends to boost local governance:

• The principle of decentralisation works better when powers and functions are delegated based on which tier of governance is best suited to fulfil that responsibility.
• State Finance Commissions are constituted every five years as per the mandate in Article 243I of the Constitution.
• Although the provision under Article 243I is identical to the provision under Article 280, its implementation has fallen short.

What could be the model (to be replicated) by FC if given Permanent status?

• Co-operative federalism has opened new chapters in co-operation between Centre and States. The GST Council is functioning on the principle of shared sovereignty.
• The sacrifice of fiscal autonomy at both levels of government in favour of the Council needs to be seen as a ‘trade-off’ so as to reap the benefits of tax harmonisation.
• Indian model of GST preserves the essence of Indian federalism.

How would the FC work (Post availing the status of Permanency):

• The Commission can function as a leaner entity in the intervening period till the next Finance Commission is set up in a full-fledged manner.
• This would be similar to the role of Lok Sabha Speaker who otherwise does not resign from the post and continues to discharge positional functions till the newly constituted Lok Sabha meets for the first time.
• During the intervening period, the FC can also address issues arising from implementation of the recommendations of the Finance Commissions.
• This will also help add knowledge and capacities and boost Fiscal prudence. The upcoming FC will be able to get a clear hearing on the challenges and rate of effectiveness of its likely recommendations.
• If the Union Finance Commission gets permanent status, it will boost the dismal conditions of various State Finance Commissions. In their effectiveness, lies the efficiency and effectiveness of the state, PRI and Municipalities’ financial health.
• To reciprocate, the government can mull over equating FC with that of Election Commission of India.