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RBI Governor bats for a Permanent Status to Finance Commission

RBI Governor bats for a Permanent Status to Finance Commission

Relevance:

  • GS 2 || Polity || Constitutional Bodies || Finance Commission

Why in news?

  • Reserve Bank of India (RBI) Governor Shaktikanta Das has called for a “permanent status to finance commissions” where the old commission continues to implement schemes till the next commission starts functioning.
  • Mr Das was earlier a member of the Fifteenth Finance Commission, and has served as a senior official in the Union finance ministry.

Need

  • In the past different Finance Commissions had “adopted different approaches on tax devolution” and made grants to states, and that was a problem because more continuity was desired.
  • Presumably in aid of that effort, RBI Governor made a case for a permanent Finance Commission as opposed to the current system, in which it is reconstituted every five years.
  • This was necessary now that the goods and services tax (GST) had come into operation, and the GST Council could focus on the need for improving tax collections while the Finance Commission could manage other reforms.

Validity

  • The suggestion for a permanent status to Finance Commissions does not take into account the continuing need for renewal in their recommendations.
  • Finance Commissions survey the fiscal landscape as well as the state of federalism and then make recommendations, which the political class has to take on board.
  • Despite different approaches there is a broad trend in recent Commissions to increase devolution towards states. This has been established, and future Commissions will no doubt take it forward.

Real concerns

  • The real problem is that such recommendations have not been followed up on in the right spirit by successive Union governments.
  • The current government, for example, did not properly act on the Fourteenth Finance Commission’s decision to raise the proportion of the shared pool of taxes given to the states from 32 to 42%.
  • Much of that increased allotment was clawed back through various types of cess, as well as a sharp reduction in the Union’s outlay on centrally-sponsored schemes.

Significance of Finance Commission

  • The Finance Commissions are a crucial part of India’s constitutional set-up. They allow for constant renewal in how the Union of India approaches federal questions.
  • Creating a permanent Finance Commission with a particular set of rules will hamper this effort and severely undermine the federal structure of India. The states are watching this discussion closely.
  • Already the Union has exerted undue influence on the Fifteenth Finance Commission through a controversial set of additions to the Terms of Reference that some states, particularly in the south, fear will penalise them.
  • The Finance Commissions should be respected, and not viewed as an inconvenience.

Mains question

  • Particularly, in the post GST scenario, there has to be continuity and change between Finance Commissions. Discuss.