Mandate and allocations

Mandate and allocations

Context

Conclave of Finance Ministers of the southern States to discuss contentious issues in the Terms of Reference (ToR) of 15^th Finance Commission

Finance Commission (Article 280)

The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President

• It shall be the duty of the Commission to make recommendations to the President as to
  • the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds
  • the principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India
  • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats & municipalities in the State on the basis of the recommendations made by the Finance Commission of the State
  • Any other matter referred to the Commission by the President in the interests of sound finance

Issues discussed

• Population census: The 13^th FC used population figures of states based on 1971 census with a 25% weightage to that factor. On the other hand the 14^th FC chose population figures of 2011 census and assigned 10% weightage in addition to the 17.5% weightage given to the 1971 population data. From the perspective of economic objectives, there is no justification in using 1971 population data as a factor in the horizontal distribution of funds. From a political perspective, the use of 1971 population data will result in losers and gainers.
• Conditions that may be imposed by the Central government while providing consent to States when they borrow under Article 293(3)
  • Article 293 (3): A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government
• Asking the Commission to propose measurable performance-based incentives to States in respect of a number of areas such as the implementation of flagship schemes, progress towards replacement rate of population growth, a control or lack of it in incurring expenditure on populist measures
• Promoting ease of doing business