Centre’s decision over Finance Commission’s recommendations

Synopsis: The 15th Finance Commission has submitted its recommendations for 2021-26 to the centre. Amongst which maximum have been accepted by the centre while others are put on a hold by it. 

Background:

• The commission headed by N.K Singh was required to give recommendations for the period 2020-21 to 2024-25. 
• Although due to COVID 19, it was required to submit an interim report for a year 2020-21 and later give a road map for 2021-22 to 2025-2026.
• Further, the recommendations were to be given keeping in mind the multiple challenges. This included dissolution of the planning Commission, introduction of GST and above all the fiscal and revenue stress induced by the pandemic.
• The commission gave the recommendations based on a judicious interpretation of the unusual terms of reference given to it. This has ensured that recommendations are based on the principle of equity.

Recommendations accepted by the Centre:

• 41% of the Centre’s taxes would be distributed amongst the states.
• Revenue deficit grants amounting to 2.95 lakh crore would be given to 17 states in 5 years.
• Grants towards urban and local bodies would be conditional upon: 
  • Setting up of a State finance commission
  • Online publication of Local bodies accounts
  • Sanitation and Water services provided by local bodies (60% weightage)
• Setting up of a non-lapsable defence modernisation fund for augmenting capital expenditure on defence beyond the normal budgetary allocations.

Recommendations put on hold:

• Taking out 1.53 lakh crore rupees from the consolidated fund of India to partly finance defence modernization fund.
• Sectors specific and other grants to states amounting to 1.8 lakh crore rupees.

Way Forward:

• The Centre must take proactive steps to win the confidence of states, especially in the current stressful times. 
• The instances of introducing more cess and surcharges should be reduced as these are not shared with states, like the recent agricultural infrastructure development cess 
• The Centre needs to take states along with it to drive the country on a sustainable fiscal path and ensure equitable growth throughout the country.

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Issues in 15th Finance Commission Recommendation