The 15th Finance Commission (FC) has been tasked to examine whether a separate mechanism for funding defence and internal security ought to be set up and, if so, how such a mechanism could be operationalised. This is a unique assignment and in a way tantamount to obtaining a recommendation on the trifurcation of the divisible pool of Central revenues among three sections — the Centre, the States, and defence and internal security. Without spelling it out in so many words, this additional mandate to the FC has been aimed at obtaining a recommendation on the desirability of an earmarked allocation towards overall security of the country.

This new task may involve specifying a threshold or norm for allocation on defence and internal security, which the Central government of the day could use to give precedence over competing demands from civil ministries during Budget allocation. If the FC obliges the Central government, a tendency may also arise to depress the relative allocation to the States from the divisible pool if the Central civil sector programmes are to be allotted their legitimate dues after a normative or minimum threshold allocation for security.

Another possibility is that, using a normative guideline based on the recommendation of the FC, the Central government may get an opportunity to press for retention of a relatively higher ceiling amount for its overall requirement, with a consequent reduction for States. In this backdrop, there is likelihood of the FC recommending a less-than-optimum allocation for States.

States’ objection

While the States as a whole will strongly resist any reduction in their total share from the 42 per cent recommended by the 14th Finance Commission, it is also possible the Centre may use an FC-recommended norm of allocation with built-in earmarking for defence and internal security to deny States’ need-based augmentation of their overall share to discharge their legitimate Constitution-based functions.

An argument may be advanced in support of the above-referred additional terms of reference drawing reference to the mandate which the FC has for recommending on disaster management and local bodies — that is, programme-specific recommendations for resource support from the shareable Central pool.

However, obtaining recommendations from the FC on funding defence/internal security and its mechanism cannot be deemed an exercise similar to soliciting recommendation from it on disaster management and the States’ local bodies. Local bodies are in the territorial and functional domain of the States. But, as there has been less-than-adequate response and commitment from many States in funding support to this third tier of governance, Finance Commission-based recommendations and the concomitant devolution of shareable funds have facilitated their functionality to an extent.

Constitutional functions

In contrast, the Centre is the best judge of the needs of the defence apparatus, and it is also the Constitution’s Union List function assigned to it.

There is, therefore, no apparent need for an FC to recommend on funding of defence expenditure — either as a competing demand from within the overall Central shareable pool of resources or as an inter se priority from within the Centre’s share from this pool. Under the present Central political dispensation, many institutions are assuming a different role than that originally envisaged. Involving a Central Finance Commission as a surrogate in Budget allocation or inter-ministerial/inter-departmental allocation of funds will be a virtual subversion of its Constitution-mandated functions.

In lieu of the implications of such a move, it may be advisable to allow the FC to concentrate on recommending the formulae and factors to determine the devolution of shareable funds from the Central pool and devise a transparent framework. In the process, the state of the country’s economy and the critical needs of governments at different tiers of governance will be taken into consideration. External and internal security are not expected to be lost sight of in such an appraisal scenario. At least, the Central finance commissions have not been oblivious to these needs. There is no reason why the 15th Finance Commission would not live up to this assessment imperative.

The writer is a former Indian Defence Accounts Service officer and has served North-East State governments as 14th and 15th Finance Commission adviser

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