An Expenditure Council could help promote fiscal prudence

Source: The post is based on the article “An Expenditure Council could help promote fiscal prudence” published in Live Mint on 7^th June 2023.

Syllabus: GS 3 – Indian Economy – Issues Related to Mobilization of Resources

Relevance: About the need of Expenditure Council

News: The government’s efforts to offer freebies may have economic implications. This highlights the need for a supervisory body, an Expenditure Council (EC), just like the GST Council.

What can be the responsibilities of Expenditure Council?

It would be responsible for developing guidelines and promoting consensus among state governments regarding resource allocation.

It can implement schemes that encourage inclusive growth, promote sustainable development, and maintain fiscal health. It could also play a crucial role in providing guidance to state governments in ensuring optimal utilization of funds.

What efforts have been taken in the past to examine India’s expenditure patterns?

The Expenditure Reforms Commission (ERC) set up by the Atal Bihari Vajpayee government in 2000 has examined India’s expenditure patterns.

Similarly, the current government formed an Expenditure Management Commission in 2014 to recommend spending reforms.

However, no such body facilitated a consensus-building platform between states and the Centre.

Can existing organizations take up the task of examining financial expenditure?

National Development Council (NDC): The NDC, which was associated with the now-dissolved Planning Commission, used to serve this purpose.  However, with the dissolution of the Planning Commission, the relevance of the NDC has faded.

Niti Aayog: The Niti Aayog is already burdened with multiple responsibilities, which can make it difficult for it to solely focus on this task in the absence of the Planning Commission. Even states may not be keen to collaborate with it on fiscal matters.

Finance Commission: It lacks a platform for effective collaboration and strategizing between the central and state governments regarding the efficient utilization of resources.

Thus, there is a need for an Expenditure Council (EC) to prioritise the areas, especially on the concurrent list where states can spend efficiently.

What can be the structure, objective and functionality of the EC?

Structure: The EC should have a composition similar to the GST Council, with the Union finance minister serving as the chairperson. Additional members should include the minister of state in the ministry of finance and finance ministers from all states and Union territories with legislative assemblies.

Objective: The primary goal of the EC should be to foster financial responsibility by establishing guidelines that discourage unnecessary expenditures. It can shift the focus towards prudent, strategic, and sustainable resource allocation. It can recommend states to refrain from such expenditures which lack long-term benefits.

Functionality: EC could analyse state-level schemes and budgets, identify unnecessary expenses, and recommend strategies for their reduction or alteration. It could also regularly publish reports and guidelines, providing a roadmap for state governments to follow.

Moreover, instead of imposing decisions, the EC should encourage dialogue and cooperation among states, facilitating the development of shared understandings.

Voting: In voting, EC should have the same mechanism as the GST Council. The Union finance minister would hold a third of the voting power, while the combined states possess the remaining two-thirds. Any decision would necessitate at least three-fourths of the total votes to pass.

There is also a need to establish robust dispute resolution mechanism to efficiently handle disagreements or disputes that might arise from its decisions.

Hence, this holistic approach would ensure that the EC is well-equipped to handle the complex nature of national financial planning, promoting sustainable growth and economic stability.