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The 15th Finance Commission that concluded its deliberation on Friday will present its report to the President on November 9.
The most important aspect of this report is devolution formulae, that is, share of central taxes to 28 States. The previous finance commission recommended 42 per cent devolution for 29 States. The current Finance Commission, in its report for FY 2020-21, recommended 41 per cent for 28 States and 1 per cent for J&K & Ladakh (given the transition of J&K from a full-fledged State to a Union Territory).
A different report this time
The report will be for 2021-2022 to 2025-2026. Although the devolution formulae for these years will be known during the Budget presentation for FY2021-22, there may not be a significant reduction in share, given the pandemic concerns. The commission is also expected to make suggestions on fiscal consolidation, reform measures related to health and agriculture, beside others.
This report will be quite different from previous ones. This was indicated by NK Singh, Chairman of the Commission in an interview to BusinessLine .
When asked about the nominal growth rate for finalisation of report, Singh said: ”Unlike earlier finance commissions, we are not so advantageously placed to assume one number for the entire period of the five years; we have to use discretion and judgment appropriately to calibrate this. These numbers cannot be the same because there is a sharp contraction; there’s a sharp upward thing going into the next year, and then there will be a balancing part. All of these, therefore, detract from our ability to use one mean number, which would be applicable for all the key macroeconomic parameters.”
Right to caliberate
Asked if this Commission would temper the devolution formulae, he said: “Remember, we have entered a caveat in the report, which we gave for 2021, that the commission reserves the right to modify this in its final report, which means the right to recalibrate, which can be either upward or downward. And, yes, the finances of the Centre are stressed, but so are the funds of the State governments.” However, he did not disclose exact formulae as the recommendation had to be presented before the President and tabled in Parliament along with the government’s action.
According to a statement released by the Commission, a copy of the report will be presented to the Prime Minister later next month. The Commission has finalised its report in consultations with the Union and State Governments, local governments, chairmen and members of previous finance commissions, Advisory Council to the Commission and other domain experts, academic institutions of eminence and multi-lateral institutions.
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