Union Cabinet on Wednesday decided to extend the term of 15th Finance Commission by 11 months to October 30, 2020. This is the second extension. After the first one, the term was to end on November 30.

The Commission will submit its interim report on Saturday, November 30, 2019. This will suggest formulae for tax devolution for the 2020-21 fiscal year. Since the validity of previous formulae ends on March 31, 2020, and the Commission needs more time in the wake of the change of stature of Jammu & Kashmir, submission of an interim report was needed.

Cabinet approval

According to a government statement, the Union Cabinet approved the 15th Finance Commission plan to submit the report for the fiscal year 2020-21 immediately and decided to extend the tenure of the panel for the presentation of the final report covering FYs 2021-22 to 2025-26 by October 30, 2020.

“The extension of the term will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2026,” the statement said.

The statement also mentioned that the Terms of Reference for the commission are wide-ranging in nature. Comprehensively examining their implications and aligning them to the requirements of the States and the Central government will require additional time. The proposed increase in coverage of the period for which the Commission’s recommendations are applicable, will help medium-term resource planning for the Centre and the State governments.

Making a five-year coverage available for the Commission beyond April 1, 2021, will help the Centre and the State governments design schemes with medium to long-term financial perspective and provide adequate time for mid-course evaluation and correction. It is anticipated that the impact of the economic reforms initiated in the current FY would be manifested in the data by the end of the first quarter of 2020-21.

Change in terms of reference

Though the statement has not mentioned additions to the terms of reference (ToR), it is believed to have been approved. Addendum in ToR is required because of the Kashmir development. Since the Finance Commission’s recommendation on devolution is meant only for States and as Jammu & Kashmir ceased to be a State, there was a need to change the terms of reference.

Section 83 of the Jammu and Kashmir Reorganisation Act, 2019 reads: “On the appointed day, the President shall make a reference to the Fifteenth Finance Commission to include Union territory of Jammu and Kashmir in its Terms of Reference and make award for the successor Union Territory of Jammu and Kashmir.”

Normally, grants for a Union Territory are provided by the Home Ministry.

The whole issue of Finance Commission’s award for State and Union Territories was debated in details by 11th Finance Commission (2000-2005) and the matter went to Law Ministry for an explanation in this regard. In its advice to the Finance Ministry, the Law Ministry made a clear distinction between State and Union Territories.

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