The terms of reference of the 15th Finance Commission were amended recently by the Union Cabinet.
These amendments make the needs of defence and internal security be set aside from regular expenditure.
The term of the Commission was also extended.
What does separate allocation for defence imply?
It is seen as an attempt by the Centre to occupy more fiscal space.
Setting aside a fund purely for defence, which is a natural endpoint of the Cabinet’s demand from the Commission, would act against the basic constitutional principle in Article 266.
Article 266 implies that the Consolidated Fund of India is a shared pool for all national priorities.
What could the allocation do?
It would sequester defence spending and give the Centre more space to spend on its own political priorities at the states’ expense.
A large part of the expenditure goes to fund the wages and pensions bills, along with other current expenditure.
The capital budget for defence is too small in any case, and much of it is taken up with tied expenditure.
The amount left for modernisation initiatives is also too small.
What could be done?
It is up to the Union government to decide how much it sets aside for defence from the revenue available to it, so it should reassess its overall expenditure.
It shouldn’t ask for the pool of taxes available for the division be altered at the expense of states that have been fiscally responsible.
The carve-out might also include spending on internal security but this shouldn’t continue forever.
If such a security-specific fund is created, it should not affect the revenue that goes to the states.
The Centre should pay for it itself. Anything else would undermine the constitutional framework and might lead to serious problems in the coming years.
Source: Business Standard
Quick Facts
Finance Commission
Article 280 of the Constitution of India provides for a Finance Commission.
It is a quasi-judicial body.
It is constituted by the President of India every fifth year or at such earlier time as he considers necessary.
The recommendations made by the Finance Commission are only of advisory nature and hence, not binding on the government.
