Finance Ministry Rejects 15th Finance Commission

The Centre has pushed back on the 15th Finance Commission’s recommendation to give special grants worth ₹6,764 crore to States in 2020-21 to ensure that no State receives less than the previous year.
This was one of the few recommendations of the Commission that the Centre did not accept in its action taken report which was tabled in Parliament .
The Commission had submitted its interim report for 2020-21 to the President on December 5, 2019.
Major recommendations which were accepted by the Centre include the 41% share for States out of the divisible pool of tax collections, the suggested grants-in-aid and post-devolution revenue deficit grants of ₹74,340 crore for 14 States. It also accepted recommendations for grants to local bodies, disaster-related grants and sectoral grants.
However, the Centre asked the Commission to reconsider the recommendation for special grants “as it introduces a new principle.” These grants were suggested to ensure that in 2020-21, “no State receives in absolute terms less than what it received in 2019-20 on account of tax devolution and revenue deficit grants.”
With regard to additional grants for nutrition worth ₹ 7,735 crore, the Centre said it would review the recommendation as part of its overall proposal of measurable performance-based incentives for States.

About fifteenth finance commission :

The FifteenthFinance Commission is an Indian Finance Commission constituted in November 2017 and is to give recommendations for devolution of taxes and other fiscal matters for five fiscal years, commencing 2020-04-01.
The commission’s chairman is Nand Kishore Singh, a senior member of the Bharatiya Janata Party (BJP) since March 2014, with its full-timemembers being Ajay Narayan Jha, Ashok Lahiri and Anoop Singh.
In addition, the commission also has a part-timemember in Ramesh Chand. Shaktikanta Das served as a member of the commission from November 2017 to December 2018.

The Finance Commission is constituted by the President under article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves.
Two distinctive features of the Commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the centre and the States respectively and equalization of all public services across the States.

It is the duty of the Commission to make recommendations to the President as to—
the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds;
the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;
the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
any other matter referred to the Commission by the President in the interests of sound finance.
The Commission determines its procedure and have such powers in the performance of their functions as Parliament may by law confer on them.

The Finance Commission is appointed by the President under Article 280 of the Constitution. As per the provisions contained in the Finance Commission [Miscellaneous Provisions] Act, 1951 and The Finance Commission (Salaries & Allowances) Rules, 1951, the Chairman of the Commission is selected from among persons who have had experience in public affairs, and the four other members are selected from among persons who–
(a) are, or have been, or are qualified to be appointed as Judges of a High Court; or
(b) have special knowledge of the finances and accounts of Government; or
(c) have had wide experience in financial matters and in administration; or
(d) have special knowledge of economics

The central government is likely to reject the 15th Finance Commission’s (FFC) recommendation to transfer ₹1.8 trillion to states in state-specific and sector-specific grants because of the heavy burden it would put on the Centre’s finances.
The finance ministry’s action-taken report on the FFC report submitted to the Parliament says the government will consider these grants at a later stage.
The nearly year-long pandemic has hit the revenues of states even harder as their share of the tax revenue collected by the Centre dropped because of the lockdown and subsequent subdued economic activity, forcing many states to slash spending. The decision to withhold a part of the grants recommended may further crimp their spending power, hurting health and education projects.
Of the ₹1.8 trillion worth of grants the commission had recommended, ₹50,000 crore was to be given for state-specific grants in six areas, including social needs, high-cost capital expenditure and tourism. The rest was sector-specific, including health, school education, higher education, farm, judiciary and statistics for the five-year period beginning FY22

3 years ago