15th Finance Commission submits its report today: Key things to know
The report is unlikely to be made public anytime soon and will possibly be tabled in Parliament, along with an action-taken report, by finance minister Nirmala Sitharaman when she presents the Union budget next year on February 1Updated: Nov 09, 2020, 09:25 IST
The NK Singh-headed 15th Finance Commission, the body that decides the shares of the Centre and states in all taxes and revenues of the nation, will submit its final report to President Ram Nath Kovind today (November 9). The report is unlikely to be made public anytime soon and will possibly be tabled in Parliament, along with an action-taken report, by finance minister Nirmala Sitharaman when she presents the Union budget next year on February 1. The 15th Finance Commission’s report is significant not only because the Union government’s relationship with states has frayed over payment of the Goods and Services Tax (GST) compensation cess, but also due to the enormous pressures on revenues due to the Covid-19 pandemic. Here are five things to watch out for:
Smaller pie: At a time when the base of resources is shrinking due to the pandemic, which has raised government expenditure, while cutting revenues, all eyes are on how much share in taxes the 15th Finance Commission’s report would recommend for the states. All previous Finance Commissions have incrementally increased states’ share in the pool of taxes. The 14th Finance Commission had recommended a quantum leap, increasing states’ share by 10 percentage points to 42%. One of the 15th Finance Commission’s mandates is to review the 14th Finance Commission’s recommendations. In the interim report for 2020-21, states’ share was cut to 41% because of the creation of new Union Territories of Jammu and Kashmir and Ladakh. Any further cut will trigger protest from states.
The 15th Finance Commission report may make historic recommendations in the area of public health care. For the first time, it will contain a chapter on public health care in the country, health infrastructure and spending. In an interview on July 8 to HT, 15th Finance Commission’s chairman NK Singh had suggested that the commission was working towards a financing model to raise federal public-health spending to about 2.1% of the country’s gross domestic product (GDP) over the next five years. The total expenditure on health by the Centre and states for 2019-20 was Rs 2.6 lakh crore, or just 1.29% of GDP, which is lower than most peer nations.
To meet long-term expenses for defence infrastructure, a key proposal by the Centre to the 15th Finance Commission is the creation of a non-lapsable defence and internal security fund either through allocation from the divisible pool of funds shared by the Centre and states or through a cess. If this is accepted, it will create a permanent defence fund for the country.
Strained finances: Given the “shrinking base”, what states would get in absolute terms will matter more than their percentage share. Also, since the pie is smaller, the grants component recommended by the 15th Finance Commission will become crucial for states. The approach on the grants component, which will be percentage amounts, will lend a “degree of sustainability, predictability and reduces volatility (in states’ finances),” an official told HT on November 7, requesting anonymity.
Equity and fairness: The Covid-19 pandemic presented a unique challenge before the 15th Finance Commission. Its recommendations ultimately decide the allocation of financial resources to states and the Centre that have a bearing on development spending, the larger issues of life expectancy, health, livelihood, economic and security challenges. It has to ensure that the revenue pressures arising out of the pandemic are reasonably addressed.