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

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A Burdensome Agenda for the Fourteenth Finance Commission

In dealing with multiple tasks, can the new commission stay true to fiscal federalism?

The Finance Commission is a constitutional body that is expected to make recommendations on fiscal relations between the centre and the states, and among the states. The Fourteenth Finance Commission (FFC) has just been constituted under Article 280 of the Constitution and has been asked to come up with suggestions on resource devolution for the five-year period of 2015-20. Over the years, Finance Commissions have been loaded with more and more responsibilities in the fiscal, economic and social areas. The terms of reference (ToR) of the FFC have gone even further in this direction, raising questions about a continuing dilution of the core functions of this important constitutional body.

Apart from carrying out the basic task of determining tax devolution and grants-in-aid under Article 275, the FFC has been mandated to look into the deficit and debt of the centre and the states keeping in mind the fiscal consolidation path proposed by the Thirteenth Finance Commission (TFC). It has also been asked to suggest measures to raise the tax ratios of both the centre and the states, improve performance of public sector enterprises and tackle challenges in ecology, environment and climate change. The FFC is required as well to study the level of subsidies needed and how to insulate the pricing of public utility services from policy fluctuations. The other important issue that the commission has to deal with is to assess the likely impact of the proposed goods and services tax (GST) on central and state finances and devise a mechanism for GST compensation. The ToR also mandates the FFC to suggest measures to amend the Fiscal Responsibility and Budget Management (FRBM) Act, keeping in view the “incentives and disincentives for states for observing the obligations laid down in the FRBM Act”.

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