The 15th Finance Commission, headed by retired bureaucat NK Singh, is all set to submit its final report to President Ram Nath Kovind on Monday, November 9.
The Finance Commission is a governmental body that decides the share of revenue and taxes and their split among the Centre and states.
The probability of the report being made public anytime soon is low. The report will be tabled in the Parliament, accompanied with an action-taken report by Finance Minister, Nirmala Sitharaman during her presentation of the budget on the 1st of February next year, according to Hindustan Times.
The tussled relationship between the Union government and the state governments over the payments of the GST compensation cess makes this report significant. This situation is allied with the pressure on revenue due to the COVID-19 pandemic.
The following are key points that are supposed to be considered:
Less fund share: While it is obvious that the revenue has shrunk and expenditures have risen due to the pandemic, the prime concern here is the break-up of the revenue that the states would receive, as recommended by the 15th Finance Commission report. The previous reports have suggested an increment in the share of revenue sanctioned for the states. The 14th Finance Commission report recommended an increase in the states' share by 10 percentage points to 42%. An important task mandated to the 15th Finance Commission report is to the review the 14th Finance Commission report. The interim report of 2020-21 suggested that states can expect a 41% cut in revenue shares due to the creation of two new Union Territories – Jammu and Kashmir and Ladakh. Any further cut may trigger a protest from states.
Public health fund: In the context of the pandemic, the 15th Finance Commission may make some unconventional recommendations of raising public health spending and improvement of the infrastructure. In an interview to the Hindustan Times, NK Singh mentioned that the commission has been working on a model that recommends the rise of federal public health fund to 2.1% of the GDP, which is an increase from the present 1.29%, lower than many nations.
Defence Finance policy: India's security context cannot be ignored, even during a pandemic. An imperative proposal by the Centre to the 15th Finance Commission is the formation of a non-lapsable defence and internal security fund through the allocation of divisible pool of funds shared by the Centre and states or through cess. If this is authorised, India will have a permanent defence fund.
Fund Crunch: Focusing on the percentage of the share to the states isn't a smart move for analysing the situation. What is more important is the share they receive in absolute terms. HT also quoted an official's statement that with regards to the grant components, which will be an amount in percentage, it will lend a “degree of sustainability, predictability and reduces volatility (in states' finances),”.
Social and Economic Justice: The Pandemic has posed a unique threat to the lives of people, something no government was ready to deal with. The report's allocation of funds is in terms of development, focusing especially on public health, livelihood, economic and security challenge.