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Make finance commission a permanent body: World Bank

Our Bureau

New Delhi , Nov. 23

THE World Bank has suggested a host of institutional reforms designed to strengthen India's Centre-State fiscal transfer system.

In a report titled `State Fiscal Reforms in India: Progress and Prospects,' the World Bank has suggested that the Finance Commission be made a permanent body. It has also recommended an overhaul of the role of Planning Commission with respect to State Finances.

The World Bank Country Director for India, Mr Michael Carter, launched the report here at a workshop hosted by the National Institute of Public Finance Policy (NIPFP).

The report has noted that one major source of difficulty in implementing reforms in the system of Centre-State transfers is that different central actors determine different components of central transfers.

It has argued that making Finance Commission a permanent body (as it is in Australia for example) would improve coordination and data collection.

The report has also recommended that the responsibility for compiling timely State-level fiscal data be entrusted to a single agency.

On overhauling the role of Planning Commission with respect to State Finances, the report has made a case for elimination of the distinction between "Plan" and "non-Plan" expenditures.

"The elimination of the distinction between `non-Plan' and `Plan' expenditures is warranted, not only because the distinction lacks economic rationale and complicates budgeting and accounting but also because it would remove this incentive to fiscal imprudence, including the bias in favour of new investments at the expense of the non-wage operation and maintenance (O&M)," the report said.

It also held that the practice of providing Planning Commission approval for a `Plan size' for each State has little justification.

The report recommended that multi year plans, if needed, should encompass the entirety of resources available for development in the State. The Planning Commission could then focus on the much more important role of being an overall strategy, monitoring, evaluation and reporting agency with respect to both fiscal and development outcomes, the report has said.

On the suggestion of making the Finance Commission a permanent body, Dr Parthasarathi Shome, Advisor to the Union Finance Minister, said that the report should have given "more explanation" as to how such a move would improve "continuity."

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