ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Federal Finance : Extraneous Agenda

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Experts on federalism, drawn from different disciplines, will continue to debate if the institutional arrangements proposed by the Eleventh Finance Commission (EFC) in response to its Additional Term of Reference (ATOR) asking the commission to draw up "a monitorable fiscal reform programme aimed at reduction of revenue deficit of the states" and to recommend "the manner in which the grants to the states to cover the assessed deficit in their non-plan revenue account may be linked to progress in implementing the programme" will undermine the autonomy the Constitution gives the states in regard to fiscal management. The EFC has proposed a state-specific monitoring agency which will include, among others, representatives of the Planning Commission, the central finance ministry and the state government and will draw up a monitorable fiscal reform programme individually for each of the 25 states, including those states not assessed as in deficit on non-plan revenue account and therefore not eligible for a grant covering such deficit. This agency will monitor the implementation of the programme drawn up for the concerned state and only on authorisation by it can part or whole of a state's share of the Incentive Fund proposed by the EFC be released to the state government. The ATOR, it may be recalled, had not asked the EFC to either cover states not in deficit on non-plan revenue account or to consider the establishment of another channel of additional devolution. All that the ATOR had asked the EFC was to consider how the release of the non-plan revenue account deficit grant could be "linked to progress in implementing the [fiscal reform] programme".

The EFC has used the ATOR to propose the establishment of a permanent mechanism covering all the states to monitor their fiscal management, overlooking that the objective of the ATOR was just to bring about the eventual elimination of the need for grant-in-aid to cover states' deficit on non-plan revenue account. The ministry of finance had explained that it regarded the ATOR "as only procedural in nature aimed at linking release of grants to states to cover the assessed deficit in their non-plan revenue account" to their performance under a monitorable fiscal reform programme. Clearly the EFC's agenda was much broader and it used the ATOR to accomplish it through a device that would impose a minimal fiscal burden on the centre in terms of additional devolution and at the same time offer the states what the commission regarded as a sufficient temptation to accept the institutional arrangement being proposed by it. The EFC has suggested that the monitoring agency could also be entrusted with monitoring the implementation of identified schemes for which the commission has recommended grants, such as upgradation, special problems and local bodies, and which are subject to specific conditionalities. In addition, the centre may also consider linking "assistance by way of extended ways and means advance and additional open market borrowings" to the monitorable fiscal reform programme drawn up for a state.

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