Discuss the significance of roles and responsibilities of Finance commission and critically examine the concerns with respect to 15th FC's Terms of reference (TOR).
Refer – The Hindu
IAS Parliament 7 years
KEY POINTS
Significance of FC’s role
· Unity – Real fairness and equity in the matter of devolution of powers and resources to the States is essential to preserve the unity of India.
· The foremost objective of the FC is thus an equitable distribution of financial resources between the two units of the Union.
· Resources – At present, the States does not have adequate resources as well as the right to raise such resources to fulfil the fundamental tasks which is entrusted on states.
· FC's role gains significance in equipping states with adequate resources to take up the major tasks of nation-building.
· Federalism – The Centre’s capacity to mobilise resources is far greater than that of the States. But states are required to undertake development expenditures that far exceed their revenue generating capabilities.
· The Constitution entrusts FC with the responsibility of addressing this anomaly and asymmetry in India’s federal system.
Concerns wrt 15th FC's ToR
· Demographic differences – Many states in India have successfully reduced their rate of population growth. This does not mean less expenditure for these states.
· These have incurred huge fiscal costs to achieve a lower population growth and healthy demographic indicators.
· Moreover it creates new commitments by the States to those in labour force and especially to senior citizens.
· Thus using the population data of 2011 as the base for tax devolution should not reduce the allocation to these States.
· Revenue deficit – It is specified that the 15th FC may also examine whether revenue deficit grants be provided at all.
· To discontinue post-tax devolution of revenue deficit grants would go against the principle of cooperative federalism.
· Approach – The 15th FC's ToR explicitly privilege the “committed expenditures” of the Centre taking a “residual approach” of distributing what is left over after providing for Centre's requirements.
· Policy domain – The 15th FC is asked to consider proposing performance-based incentives.
· States see this as an attempt to micro-manage their fiscal domain. This is because states have set their own agenda for development.
· Thus, FC proposing “measurable performance-based-incentives” would affect the liberty and flexibility of the states' policy realm.
· It is not the duty of the FC to venture into the realm of day-to-day governance of the states.
