6th finance panel to examine state’s fiscal health, suggest framework for restoration

The commission will look at augmenting the Consolidated Fund of the state, outcomes of 15th Union Finance Commission and 6th Punjab Pay Commission

Chandigarh

Former chief secretary KR Lakhanpal, who heads the 6th Punjab Finance Commission.

The 6th Punjab Finance Commission, which expressed concern over non-release of funds and shortfall in compensatory payments by successive governments to local bodies in Punjab in the past decade, has decided to examine the economic and financial health of the state and provide a broad framework for a medium-term fiscal consolidation programme.

The commission, headed by former chief secretary KR Lakhanpal, will look at augmenting the Consolidated Fund of the state, outcomes of 15th Union Finance Commission (UFC) and 6th Punjab Pay Commission (PPC), effect of Covid-19, impacts of urbanisation, growth and structural transformation of Punjab economic on the state finances, according to its interim report on devolution of funds to local bodies in financial year 2021-22.

These structural issues will be addressed by the commission in its final report for financial years 2021-22 to 2025-26 in addition to making recommendations on the principles governing devolution of funds panchayats and municipalities, determination of the taxes, duties, tolls and fees to be assigned to or apportioned, grants-in-aid from the Consolidated Fund and measures needed to improve the financial of local bodies. The final report is to be submitted by December 31, 2021.

Financial crisis

Pointing out the deep financial crisis in the state, the commission said the worsening fiscal position has seriously eroded the government’s capacity to invest in infrastructure, education and skill development and public health and nutrition, which underpin the future growth of the state.

The commission said it can provide a broad framework the way forward and it is for the state government to flesh out the details. “Without fully factoring in the outcomes of recommendations of the 15th UFC, 6th PPC and fiscal shocks due to Covid-19 on the state finances addressing certain structural an important bearing on the PRIs (panchayati raj institutions) and ULBs (urban local bodies) evolving into self-governing entities, mere transferring financial resources to them from the state government will of little avail,” according to the report tabled in the state assembly last week.

The way forward

Lakhanpal said the shrinking size of the pie is the real problem and calls for pressing in hard budget options. “These structural issues needed to be attended to on priority. We are not saying these should be addressed overnight or over five years, but directionally we should move towards resolving them. The doability or political expediency of it is the decision of political executive,” he said.

The decision to factor in the impact of Covid-19, pay commission report and the decision of the central government on recommendations of the 15th Finance Commission on the Consolidated Fund of the state was taken in a meeting Lakhanpal and finance minister Manpreet Singh Badal had with chief minister Capt Amarinder Singh three months ago. Another decision in the meeting, according to the interim report, was to amend the terms of reference (ToR) of the committee accordingly. However, a senior official said the terms of reference of a State Finance Commission and the Central Finance Commission are given in the Constitution itself. “Their domain is very well defined and cannot be altered by the state government. If it wants to comment upon the fiscal position of the state, it is not within its purview. This has been communicated to the commission in writing,” said the official. In a meeting on January 11, special secretary, expenditure, Abhinav Trikha, also told the commission that there appears to be no need to amend the existing structural issues, barring a few, are covered by the existing ToR.

Structural issues to be addressed in final report

-Augmenting the consolidated fund of the state

-Outcomes of 15th Central Finance Commission, 6th Pay Commission and effect of Covid-19 on state finances

-Impacts of urbanisation, growth and structural transformation of Punjab economy on state finances

-Statutory mechanism for implementing its recommendations and compensatory payments to ULBs

-Identification of new revenue handles, raising and rationalisation of user charges and unproductive expenditure of local bodies

-Unlocking the capital/wealth (land, buildings, etc) within local bodies

-Exploring possibility of establishing metropolitan areas in or around cities having more than 5 lakh population