The Fifteenth Finance Commission has completed its report for the award period 2021-22 to 2025-26. The report will be submitted to President Ram Nath Kovind on November 9, as per an official statement. The Commission, headed by Chairman NK Singh, will also present a copy to Finance Minister Nirmala Sitharaman.
The Finance Commission (15th FC) in its report for 2020-21, had recommended a marginal reduction in vertical devolution of the divisible tax pool to 41 percent from 42 percent, primarily due to the then newly formed union territories of Jammu and Kashmir and Ladakh getting funds out of the centre’s share and devolution being for 28 states compared to 29 earlier. The centre had accepted the Commission’s recommendations.
With the global and Indian economy severely hit due to the Covid-19 pandemic, the 15th FC has had to pretty much start from scratch, as none of the recommendations of the first report can be carried forward to the second report.
The Commission had got a year’s extension last year, primarily due to the formation of the two new union territories. Hence its original five year-award period of 2020-21 to 2024-25 is now extended to six years.
The Commission chairman NK Singh has publicly spoken about the difficulty of projecting revenue, expenditure and economic indicators for centre and states, in light of the pandemic. At a time when the centre and states are strapped for resources, the Commission has had to walk a proverbial tightrope in its report, in terms of devolution to states.
Singh had said in early September that the commission would consider recommending a range for yearly fiscal deficit targets, instead of a fixed number, as is the practice now.
There have been discussions fundamentally revisit the Fiscal Responsibility and Budget Management Act, under which the centre gives a single number as the fiscal deficit target as percentage of nominal gross domestic product. The target for 2020-21 is 3.5 per cent of GDP.
“There is merit looking at a range rather than a number. In would be in congruity with monetary policy targets. Giving a range will be a more realistic proposal, and will lead to less accounting engineering,” Singh had said.
Singh had also said that given the uncertainty surrounding the pandemic, the 15th FC faced a tough task giving out recommendations and projections for the five-year award period.
“The forward path would be dependent on how abiding and deep are the structural reforms which were announced as part of the ‘Aatmanirbhar Bharat’ package. We may not have the luxury of a linear path on revenue buoyancy for each of the award years. However, the devolution we cannot alter for each of the five award years. We can only give one devolution for the full five years,” he had said.
The Commission’s recommendations will reflect in the Modi government’s 2021-22 Union Budget
. The Finance Minister is likely to table the Commission’s report, and an action taken report signifying which recommendations of the Commission have been accepted, along with the budget documents on February 1.