{"id":254013,"date":"2023-07-29T20:52:22","date_gmt":"2023-07-29T15:22:22","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=254013"},"modified":"2023-08-31T10:16:44","modified_gmt":"2023-08-31T04:46:44","slug":"charting-the-path-for-the-sixteenth-finance-commission","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/charting-the-path-for-the-sixteenth-finance-commission\/","title":{"rendered":"Charting the path for the Sixteenth Finance Commission"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cCharting the path for the Sixteenth Finance Commission\u201d <\/strong>published in the \u201cThe Hindu\u201d <\/strong>on 29th July 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS2- Constitutional bodies. GS3- Government budgeting<\/p>\n

Relevance:<\/strong> Finance Commission<\/p>\n

News-<\/strong> The Sixteenth Finance Commission is due to be set up shortly.<\/p>\n

What are the issues that should be taken into consideration by the 16th Finance Commission?<\/strong><\/h2>\n

Share of states-<\/strong><\/p>\n

The Fourteenth Finance Commission<\/strong> increased the share of States in the divisible pool of central taxes<\/strong> from 32% to 42%<\/strong>. When the number of States in India was reduced to 28, this share was revised to 41%.<\/p>\n

The Center was able to handle this situation due to the withdrawal of Planning Commission grants <\/strong>following the abolition of the Planning Commission.<\/p>\n

Centre is facing fiscal imbalances<\/strong>. So, there is no strong case for proposing any additional increase in the States’ share of central taxes.<\/p>\n

Role of non-shareable cesses and surcharges-<\/strong><\/p>\n

Between the fiscal years 2020-21 and 2023-24, the effective share<\/strong> of States in the Center’s gross tax revenues<\/em> averaged approximately 31%. It was notably lower than the previous share of nearly 35% observed during 2015-16 to 2019-20.<\/p>\n

This decline was primarily attributed to a significant increase in the share of cesses and surcharges. <\/strong><\/p>\n

It increased to 18.5% of the Center’s Gross Tax Revenues <\/strong>during 2020-21 to 2023-24 from 12.8% during 2015-16 to 2019-20. During the period of the Thirteenth Finance Commission, this share was merely 9.6%.<\/p>\n

One possible recommendation could be imposing an upper limit of 10% for the share of cesses and surcharges<\/strong> as a percentage of the Center’s GTR.<\/p>\n

If this proportion exceeds 10%, the share of States should be increased accordingly. The Sixteenth Finance Commission, using the most recent data, could refine this formula to make it more effective.<\/p>\n

Per capita income criteria<\/strong>– The share of individual States in the Centre\u2019s divisible pool of taxes <\/strong>is determined by a set of indicators. Per capita income<\/strong> is one of the criteria.<\/p>\n

Per capita income is the distance of a State\u2019s per capita income from a benchmark<\/strong>. It is usually determined by average per capita income of the top three States. <\/strong><\/p>\n

This criterion ensures relatively larger shares for relatively lower income States. At present, it has the highest weight of 45%<\/strong>. Many of the richer States want a lower weight for this criterion.<\/strong><\/p>\n

It is essential to give proper consideration to the requirements of the lower-income States. <\/strong>These States will have a greater contribution to India’s ‘demographic dividend’ <\/strong>in the future.<\/p>\n

One approach could involve maintaining the weight of the distance criterion<\/strong> at its current level or even reducing it to 40%.<\/p>\n

However, to address the needs of the economically disadvantaged States, it might be beneficial to make some upward adjustments<\/strong> in the resources allocated to them through grants.<\/p>\n

Equalisation provision<\/strong>– It is essential to give priority to equalising the provision of education and health services<\/strong> in the overall framework of resource transfers.<\/p>\n

Resource allocation to individual States could be guided by the equalisation principle,<\/strong> by utilising a limited number of criteria such as population, area, and distance<\/strong>. This approach could be complemented by an appropriate system of grants.<\/strong><\/p>\n

The equalisation principle <\/strong>aligns with both equity and efficiency <\/strong>and has been successfully implemented in federations like Canada and Australia.<\/p>\n

Debt burden of centre and states<\/strong>–<\/p>\n

Combined debt-GDP ratio <\/strong>of central and State governments had peaked at 89.8% in 2020-21. Centre\u2019s debt-GDP ratio is 58.7%, and it is 31%.for states.<\/p>\n

These numbers are showing improvements. But, still above the corresponding FRBM norms of 40% and 20%.<\/strong> The 2018 amendment to the Centre\u2019s FRBM needs to be re-examined.<\/p>\n

A few State governments have relatively larger debt and fiscal deficit <\/strong>numbers relative to their GSDPs.<\/p>\n

There is proliferation of subsidies<\/strong> and the re-introduction of the old pension scheme<\/strong> in States However, the financing sources<\/strong> for these subsidies and the resulting fiscal burdens <\/strong>are not clearly identified.<\/p>\n

What reforms can be suggested by the 16th Finance Commission?<\/strong><\/h2>\n

A loan council<\/strong> can be set up. It was recommended by the Twelfth Finance Commission<\/strong>. It should keep a watch on the loan magnitudes and profiles<\/strong> of the central and State governments.<\/p>\n

It needs to thoroughly investigate the issue of non-merit subsidies<\/strong>. The Finance Commission should take a firm stance on States adhering to fiscal deficit limits. <\/strong><\/p>\n

It can offer incentives <\/strong>to States that maintain fiscal discipline<\/strong> and penalties<\/strong> for those exceeding the fiscal deficit limits.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cCharting the path for the Sixteenth Finance Commission\u201d published in the \u201cThe Hindu\u201d on 29th July 2023. Syllabus: GS2- Constitutional bodies. GS3- Government budgeting Relevance: Finance Commission News- The Sixteenth Finance Commission is due to be set up shortly. What are the issues that should be taken… Continue reading Charting the path for the Sixteenth Finance Commission<\/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":[212,225,10498],"class_list":["post-254013","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-2","tag-polity","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":6,"cached_at":"","cached_date":1698382077},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/254013","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=254013"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/254013\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=254013"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=254013"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=254013"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}