{"id":52369,"date":"2019-09-20T19:00:41","date_gmt":"2019-09-20T13:30:41","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=52369"},"modified":"2019-09-20T16:30:59","modified_gmt":"2019-09-20T11:00:59","slug":"7-pm-a-suggestion-to-reform-indias-architecture-of-fiscal-federalism-20th-september-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-a-suggestion-to-reform-indias-architecture-of-fiscal-federalism-20th-september-2019\/","title":{"rendered":"7 PM | A suggestion to reform India\u2019s architecture of fiscal federalism | 20th September, 2019"},"content":{"rendered":"\n<p><strong>Context: <\/strong>Amendments\nin Term of Reference of the Fifteenth Finance Commission and its implications.<\/p>\n\n\n\n<p><strong>More in news: <\/strong>On 29\nJuly 2019, the government amended and added to the terms of reference (TOR) of\nthe 15th Finance Commission (15th FC), asking it to \u201c&#8230; examine whether a\nseparate mechanism for funding of defence and internal security ought to be set\nup&#8230;\u201d<\/p>\n\n\n\n<p><strong>Finance Commission: <\/strong><\/p>\n\n\n\n<p>Under Article\n280 of the Constitution, Finance Commission is appointed at the expiration of\nevery five years or earlier. Finance Commission focuses on the vertical\n(division of revenues between centre and states) and the horizontal\ndistribution (between states to ensure regional equity). &nbsp;Under the Constitution, the main\nresponsibilities of a Finance Commission are the following.<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>The distribution&nbsp;between the Union\nand the States of the net proceeds of taxes which are to be divided between\nthem and the allocation between the States of the respective shares of such proceeds.<\/li><li>Determination of principles and quantum\nof grants-in-aid to States which are in need of such assistance.<\/li><li>Measures needed to augment the\nConsolidated Fund of a State to supplement the resources of the Panchayats and\nMunicipalities in the State on the basis of <br>\nthe recommendations made by the Finance Commission of the State.<\/li><\/ol>\n\n\n\n<p><strong>Fifteenth\nFinance Commission:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The Government of India, with the\napproval Hon\u2019ble President of India, has constituted Fifteenth Finance\nCommission in 2017.<\/li><li>The Commission will make recommendations\nfor the five years commencing on April 1, 2020.<\/li><li>This Commission will be headed by Shri.\nN.K.Singh<\/li><\/ul>\n\n\n\n<p><strong>Reason for adding the new Term of\nReference:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Economically:\n<\/strong>Central\nrevenue is projected to grow by 25.6% in the 2019-20 budget, compared to the\n8.9% actual rise in 2018-19. The expenditure projections are equally\nunrealistic. The central government is well aware that another major\nexpenditure shortfall in 2019-20 will further reduce growth, which had\ndecelerated to 5% by the first quarter of 2019-20. It is therefore seen as an\nattempt to pre-empt some resources of the states for funding defence and\ninternal security.<\/li><li><strong>Politically:\n<\/strong>The conversion of\nthe Jammu and Kashmir state into two Union territories by the stroke of a pen,\nalong with the abrogation of Article 370. Opposition therefore claim that\namendment of the 15th FC TOR is part of a larger campaign to undermine the\nfederal character of the Constitution.<\/li><\/ul>\n\n\n\n<p><strong>Standard Practice of distribution of\n\u2018Sharable pool of Tax\u2019:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Two-thirds of the shareable pool of tax\nrevenue is usually transferred to the states. <\/li><li>In the 14th Finance Commission award\nperiod, this was set at 63%, with the balance 37% being the Centre\u2019s share. <\/li><li>The Centre also receives cesses and\nsurcharges as well as dividends and profits of central public enterprises as\nwell as public sector financial institutions such as banks and the Reserve Bank\nof India. <\/li><li>In setting the Centre\u2019s share at 37% of\nthe shareable pool, the 14th FC had factored in the Centre\u2019s access to these\nnon-shareable revenues, as well as its expenditure needs, including the\nprovision for defence and internal security.<\/li><\/ul>\n\n\n\n<p><strong>Fiscal Space versus Fiscal Autonomy:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>If the 15th FC recommends that a certain\nportion of the shareable pool should be separately carved out for defence and\ninternal security, it may not necessarily erode fiscal space of the states.<\/li><li>However, defence is a central subject\nand internal security is the joint responsibility of the Centre and the states.\nThis would imply that the provision for internal security would be carved out\nin advance from the resources of states, but without their approval. <\/li><li>So, this would not erode fiscal space of\nthe states but their fiscal autonomy.<\/li><\/ul>\n\n\n\n<p><strong>Reforms in the architecture of fiscal\nfederalism:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Allow\ntransfers through untied tax devolution<\/strong>: However, such\nstep is unrealistic in the sense that issues of national importance such as\nbasic education cannot be left alone on shoulders of states. Given the long\nlegacy of Centrally Sponsored Scheme (CSS), it is difficult to imagine that any\ncentral government would completely walk away from CSS.<\/li><li><strong>Make\nthe Finance Commission a permanent body<\/strong> and expand its\nmandate to undertake the resource allocation role. The scope of the Finance\nCommission should therefore be enlarged to reduce the interference of the\nCentre in the financial management of the States. In the context of raising\nrevenues the recommendation of the Tenth Finance Commission to increase the\nrole of industry, needs to be seriously considered.<\/li><li><strong>Revive\nthe Inter-State Council<\/strong> as an effective federal decision-making\nbody. It already exists as a constitutional body, but has been left dormant. It\ncan be restructured as a federal institution outside the home ministry, a\ncouncil with state chief ministers as members and chaired by the Prime\nMinister. The council should be supported by a secretariat of experts to design\nprogrammes and lay out the principles for their allocation among the states.<\/li><\/ul>\n\n\n\n<p><strong>Conclusion: <\/strong>Financial\nrelations are the most important aspect of Centre-State relations. No system of\nfederation can be successful unless both the Union and the States have at their\ndisposal adequate financial resources to enable them to discharge their\nrespective responsibilities under the Constitution. The Union and States \u2018are\nmutually dependent\u2019 and this coordinate nature has given stability to the\nworking of the Indian federation.<\/p>\n\n\n\n<p>Our Constitution\nhad adopted the desirability of the Finance Commission which by all accounts\ncan provide the most logical and fair institution method as successive Finance\nCommissions have made valuable contributions to our federal system. Every State\nwants more resources, and a larger share of the divisible pool.<\/p>\n\n\n\n<p>The Finance\nCommission is to do justice between the Centre and the States, and between a\nState and a State. Its purpose is to assure the States that they will have a\nfair deal. <\/p>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/epaper.livemint.com\/Home\/MShareArticle?OrgId=7af914be&amp;imageview=0\"><strong>https:\/\/epaper.livemint.com\/Home\/MShareArticle?OrgId=7af914be&amp;imageview=0<\/strong><\/a><strong><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: Amendments in Term of Reference of the Fifteenth Finance Commission and its implications. More in news: On 29 July 2019, the government amended and added to the terms of reference (TOR) of the 15th Finance Commission (15th FC), asking it to \u201c&#8230; examine whether a separate mechanism for funding of defence and internal security&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-a-suggestion-to-reform-indias-architecture-of-fiscal-federalism-20th-september-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | A suggestion to reform India\u2019s architecture of fiscal federalism | 20th September, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49370,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[],"class_list":["post-52369","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","category-public","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2019\/07\/7-PM.png?fit=1000%2C500&ssl=1","views":{"total":154,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/52369","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\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=52369"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/52369\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49370"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=52369"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=52369"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=52369"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}