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The report by the Finance Commission which is more important than the Budget

The people of the country have been constantly biting their nails about the new budget, Budget 2021-22 that the finance minister Ms. Nirmala Sitharaman announced in the parliament earlier this Monday. The first day of February witnessed a so proclaimed ‘like never before’ budget and it would be safe to say the government budget presented indeed met the criteria, for now, with the stock market reacting positively to it in the first few hours of its announcement. However, there’s another very important report that was presented in the parliament that day, while the middle salaried groups and traders had their eyes on the budget. Yes, the Finance Commission’s final report. The report presented by Finance commission is expected to have a large impact on the economic set up of the economy and truth be told, we expect nothing less of it.

The current commission is chaired by former civil servant, serving as a part of the reform team in the finance ministry under S. Manmohan Singh’s ministerial rule, Mr. N K Singh. Other members of the board include the former chief economic advisor Mr. Ashok Lahri, Georgetown University’s Adjunct professor Mr. Anoop Singh, and former finance secretary Mr. Ajay Narayan Jha. The secretary post is handled by the civil servant Mt. Arvind Mehta, and NITI Aayog’s Ramesh Chand also serve as a part time member.

The report generally centres around the division of tax revenue and other sources of revenue between The Centre and The States, division of funds to various states and classification of the norms of funding, as decided by the Finance commission, a constitutionally elected body of experts and individuals, formed every 5 years. With their unique terms of references, every Finance Commission is responsible for providing grant in aid out of the  consolidated fund of India, and thus plays a crucial role not only for the economy but for individual states as well.

With 108 recommendations and detailed propositions, the 15th Finance Commission’s report was presented in the parliament with full swing, holding special importance owing to the fact that it is the first report ever since the Goods and Services Tax was first introduced. It is important to take note of why this report is so important, not only for states and centre but also for every single household who would get affected in a significant manner, even though indirectly. This comes in effect after the revelations that this report is the first centre to state, and inter state transfer of funds, since the introduction of the goods and services tax. Not just that, the growing income parities between different sections of the society, especially after the pandemic and government’s over the top privatisation, are at an all time high. This means that the socio economic life of every citizen would be affected by the fund distribution, as suggested by the Finance commission’s report.

If a persistent pattern is looked upon, it can be noted that commission after commission, the share of central taxes’ funds in state’s side has increased exponentially, with the share increasing from 29.5% in 2000-05 to a whopping 42% in the last Financial commission of 2015-20. This is a very sizeable increase and has also invited considerable criticism on the government’s part. The argument against posed how the government is left with limited resources to undertake subject under its exclusive domain, after expenditure has been made on policies for education, healthcare and employment. So it was an interesting lookout for the people and the economists to see the share decided by the 15th finance commission for the allocation of central taxes to the state.

A further lookout for the healthcare industry gained significant importance because on the ongoing corona virus pandemic that has claimed lakhs of lives and has openly challenged the country’s shattering healthcare system and infrastructure. Experts and the people would expect nothing less than a significant increment in the expenditure on healthcare industry to boost infrastructure development, improve current condition and pave ways for all possible scopes under the industry. The panel is also expected to introduce an all-India service of health professionals on the lines of IAS and IPS. So, a significant allocation to the healthcare sector? We’re all in.

Another sector that proved its importance as so in the recent times is the defence sector and the point to note here is the relative importance of allocation mechanism as compared to the allocation itself. This statement directs to the fact that the inclusion of non-lapsable fund allocation for capital expenditure that will supposedly include monetisation of assets is under consideration. This creation of fund would result in delinking the acquisition of key equipment from annual budget cycle, like is undertaken right now.

As mentioned before, this report by the Finance Commission is the first of its sort because of thr new tax regime of Goods and Services tax that was set up back in 2017. As a result, the commission’s key response should be to incentivise schemes and provisions such that the Goods and services tax base is strengthened and expanded, by providing incentives to the states.

Incentives for agriculture are also a part of the current discussion, despite the farm laws receiving heavy backlash by the people. However, apart from that, schemes to incentivise states to boost farm exports and undertake measures to diversify production and markets are also under talks.

The pandemic has definitely been one of the biggest challenges the world had to witness in terms of both growth and current condition. The funds have gone down terribly and the needs have increased manifold. This uncertainty on the pace and path of economic revival and the country’s way back to growth and stability at least like the pre-COVID period would depend mostly on the kinds of policies undertaken and their implementation- both by the centre and the states.

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