Centre announces constitution of Fifteenth Finance Commission

The government on Monday announced the constitution of the Fifteenth Finance Commission, which will make recommendations on the finances of the centre for the five years commencing 2020.

The finance commission, which has started functioning from 27 November 2017 after the President of India approved its constitution, has been tasked with the job of striking a balance between the financial rights and responsibilities of states in a federal structure.

The centre has asked the Fifteenth Finance Commission to make recommendations on the fiscal incentives needed to be provided to states that perform well on parameters such as improvements in ease of doing business and sanitation, and rein in populist measures.

This commission, headed by NK Singh, IAS, who is a former member of Parliament and a former secretary to the government of India, has Shaktikanta Das, former secretary to the government of India and Anoop Singh, adjunct professor, Georgetown University, as its members. Ashok Lahiri, non-executive chairman (part time) of Bandhan Bank and Ramesh Chand, member of NITI Aayog, are part-time members of the commission. Arvind Mehta has been appointed secretary to the commission. 

The commission as per a gazette notification issued on 27 November 2017, has been tasked with making recommendations on the principles which should govern the grants-in-aid of the revenues of the states out of the Consolidated Fund of India and the sums to be paid to the states by way of grants-in-aid of their revenues under Article 275 of the Constitution for purposes other than those specified in the provisos to clause (1) of that article.

It would also make recommendations on the measures needed to augment the Consolidated Fund of a state to supplement the resources of the panchayats and municipalities in the state on the basis of the recommendations made by the finance commissions of the states.

"The commission shall review the current status of the finance, deficit, debt levels, cash balances and fiscal discipline efforts of the union and the states, and recommend a fiscal consolidation roadmap for sound fiscal management, taking into account the responsibility of the central and state governments to adhere to appropriate levels of general and consolidated government debt and deficit levels, while fostering higher inclusive growth in the country, guided by the principles of equity, efficiency and transparency," an official announcement said.

The commission may also examine whether revenue deficit grants be provided at all.

While making its recommendations, the commission will take into consideration the resources of the central and state governments for the five years commencing on 1 April 2020 on the basis of the levels of tax and non-tax revenues likely to be reached by 2024-25.

In the context of both tax and non-tax revenues, the commission will also take into consideration their potential and fiscal capacity to meet the demand on the resources of the central government, particularly on account of defence, internal security, infrastructure, railways, climate change, commitments towards administration of UTs without legislature, and other committed expenditure and liabilities.

The commission will also look into the demand on the resources of the state governments, particularly on account of financing socioeconomic development and critical infrastructure, asset maintenance expenditure, balanced regional development and impact of the debt and liabilities of their public utilities.

The commission has been tasked with the job of assessing the impact on the fiscal situation of the union government of substantially enhanced tax devolution to states following recommendations of the 14th Finance Commission, coupled with the continuing imperative of the national development programme, including New India – 2022.

The commission will look into the impact of the GST, including payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses, earmarking thereof for compensation and other structural reforms programme, on the finances of the centre and states and suggest the conditions that the central government may impose on the states while providing consent under Article 293(3) of the Constitution.

The commission may consider proposing measurable performance-based incentives for states, at the appropriate level of government, in areas of:

  • Efforts made in expansion and deepening of tax net under GST;
  • Efforts and progress made in moving towards replacement rate of population growth ;
  • Achievements in implementation of flagship schemes of government of India, disaster resilient infrastructure, sustainable development goals, and quality of expenditure;
  • Progress made in increasing capital expenditure, eliminating losses of power sector, and improving the quality of such expenditure in generating future income streams;
  • Progress made in increasing tax/non-tax revenues, promoting savings by adoption of direct benefit transfers and public finance management system, promoting digital economy and removing layers between the government and the beneficiaries;
  • Progress made in promoting ease of doing business by effecting related policy and regulatory changes and promoting labour intensive growth;
  • Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services;
  • Control or lack of it in incurring expenditure on populist measures; and
  • Progress made in sanitation, solid waste management and bringing in behavioural change to end open defecation.

The commission may review the present arrangements on financing disaster management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.

The commission shall indicate the basis on which it has arrived at its findings and make available the state-wise estimates of receipts and expenditure.

The commission has been asked to make its report available by 30 October 2019, covering a period of five years from 2020 to 2025.

The commission will use the population data of 2011 while making its recommendations.