On Finance Commissions - I

This is with reference to your editorial on the terms of reference of the Fourteenth Finance Commission (“A Burdensome Agenda for the Fourteenth Finance Commission”, EPW, 26 January 2013). It is a fact that Finance Commissions (FCs), since the Eleventh, have been stipulating conditionalities for devolving grants and recommending debt relief. More often than not, mechanical adherence to deficit targets has been made the benchmark instead of looking at the quality of fiscal consolidation. The changing role of FCs is making it more a body for effecting implementation of the Fiscal Responsibility and Budget Management Acts at the level of the states rather than one which has to address issues of vertical and horizontal equity as is its primary constitutional mandate.

Besides, with the increasing role of central ministries and the Planning Commission entering into area of grant devolution, the role of the FC has been constrained in this area too and it confines itself only to non-plan revenue grants. The Constitution envisages the FC as the prime grant devolution recommending body under Article 275 and only other grants, under special circumstances, fall under the “miscellaneous” provision of Article 282 of the Constitution. The Ninth Finance Commission report offers an excellent discussion on this, but things did not change.