{"id":248173,"date":"2023-06-15T20:23:10","date_gmt":"2023-06-15T14:53:10","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=248173"},"modified":"2023-06-15T20:23:10","modified_gmt":"2023-06-15T14:53:10","slug":"the-next-finance-commission-will-have-a-tough-task","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-next-finance-commission-will-have-a-tough-task\/","title":{"rendered":"The next Finance Commission will have a tough task"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cThe next Finance Commission will have a tough task\u201d <\/strong>published in \u201cThe Hindu\u201d <\/strong>on 15th June 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Government budgeting<\/p>\n

Relevance<\/strong>– Issues related to taxation laws<\/p>\n

News- <\/strong>The government will appoint a Finance Commission in the next few months to determine how much of the Centre\u2019s tax revenue should be given away to States and how to distribute that among States.<\/p>\n

What are issues related to horizontal distribution by the Finance Commission?<\/strong><\/h2>\n

Terms of reference<\/strong>– Finance Commission in 2017, considered the 2011 population figures<\/strong> in determining the expenditure needs<\/strong> of a State. This was a departure from the standard practice of using the 1971 population numbers. <\/strong><\/p>\n

States which had done well in stabilising population growth rates<\/strong> protested against this change in the base year. They called it a \u2018penalty for good performance\u2019<\/strong>.<\/p>\n

Revenue deficit<\/strong>– The rationale for revenue deficit grants is that every State should be able to provide a minimum level of service<\/strong> to its residents even if it involves cross-subsidisation. <\/strong><\/p>\n

This has become a perverse incentive<\/strong> for states. States do not make efforts to raise revenues on their own because the Finance Commission compensates them.<\/strong><\/p>\n

Finance Commissions have struggled to determine how much a state\u2019s deficit is due to its fiscal incapacity<\/strong> and how much is due to fiscal irresponsibility.<\/strong><\/p>\n

Division among states<\/strong>– These fault lines across States have deepened in recent years along political, economic and fiscal dimensions. <\/strong><\/p>\n

Southern States of the country are doing better in terms of infrastructure, private investment, social indicators and the rule of law<\/strong>. It has widened the north-south gap.<\/strong><\/p>\n

The nature of horizontal distribution<\/strong> is such that richer States compensate<\/strong> poorer States. There is a need to ensure that this happens without deepening the divide<\/strong>. It creates a challenge for the government in defining the terms of reference <\/strong>of the Finance Commission.<\/p>\n

What should be the focus area of the next Finance Commission?<\/strong><\/h2>\n

Cess and Surcharges<\/strong>– Centre is increasingly resorting to a levy of cesses and surcharges <\/strong>rather than raising taxes. Proportion of cesses and surcharges in the Centre\u2019s total tax revenue had nearly doubled from 10.4% in 2011-12 to 20.2% in 2019-20.<\/p>\n

The Constitution was amended in the year 2000, it gave States a share in the Centre\u2019s total tax pool.<\/strong> The implicit understanding was that the Centre will resort only sparingly <\/strong>to cesses and surcharges, and not as a matter of routine. <\/strong><\/p>\n

As a result of this breach, States have felt cheated out of their legitimate share of national tax revenue. <\/strong><\/p>\n

The next Finance Commission should lay down guidelines for when cesses and surcharges <\/strong>might be levied. It should suggest a formula to cap the amount that can be raised.<\/p>\n

Freebies<\/strong>– The Finance Commission should look at the government spending on freebies<\/strong>. All political parties are guilty on this count.<\/p>\n

The restraints imposed by the FRBM Act <\/strong>should have acted as a check on such populist spending.<\/strong> But, governments have found ways of raising debt <\/strong>without it appearing in the budget books.<\/p>\n

The next Finance Commission should lay down guidelines on the spending on freebies.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cThe next Finance Commission will have a tough task\u201d published in \u201cThe Hindu\u201d on 15th June 2023. Syllabus: GS3- Government budgeting Relevance– Issues related to taxation laws News- The government will appoint a Finance Commission in the next few months to determine how much of the Centre\u2019s… Continue reading The next Finance Commission will have a tough task<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10498],"class_list":["post-248173","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1698377303},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/248173","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=248173"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/248173\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=248173"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=248173"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=248173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}