The Central Government is considering extension of tenure of the 15th Finance Commission set up in the year 2017. The tenure of the Commission was originally scheduled to expire in October 2019, but when the terms of reference of the 15th Finance Commission were amended in July 2019, the President also extended the tenure of the Commission to 30 November. Experts believe that changes in the past like recent developments in the Gulf region, reduction in GDP growth of the country, changes in direct tax rates and creation of new union territories have complicated the assessment of economic growth in the short term. Have given. Since the recommendations of the 15th Finance Commission will remain in force for the next five years, it is necessary to extend its tenure.
Amendment to ToR
- In July this year, the central government made two amendments to the terms of reference (ToR) of the 15th Finance Commission.
- The first amendment included that the Finance Commission investigate whether “a separate mechanism should be put in place to finance defense and internal security, and if so, how such a mechanism would be handled.”
- The second amendment to ToR was related to section 83 of the Jammu and Kashmir Reorganization Act, 2019 (J&K Act), which came into force on 31 October, with Jammu and Kashmir becoming a union territory.
- The said section of the Act makes it certain for the President of the country to “include Jammu and Kashmir and Ladakh in the terms of reference of the 15th Finance Commission (ToR).”
Separate mechanism for financing
- It is worth mentioning that under the present system, the Government of India (GoI) demands a grant from the Lok Sabha for the deployment of the Defense and Armed Forces under the Ministries of Defense and Home Affairs.
- According to experts, the separate mechanism that is being envisaged can be in the public account as a defense and internal security fund, in which their annual budgetary allocation will be credited which can be spent on essential items.
- This type of system has been adopted earlier and the National Disaster Relief Fund is a prime example.
Challenges in building a separate system
- The budget for the year 2019-20 for the defense sector and the budget for the police of the Ministry of Home Affairs is about 5,30,000 crores.
- Depositing such a large amount of funds could hamper the budgetary management of the government.
- Similar demands related to the creation of separate mechanisms can also be seen from many other ministries, which will further affect budgetary management.
- This mechanism violates the Government Accounting Rules 1990 (GAR), which only allows a fund to be created in the public account for the implementation of specified schemes of ministries and not for the entire budgetary allocation of departments.
- Many critics also believe that this mechanism violates the basic principles of the annual budget given in the constitution.
- If such a fund is created in the public account of the Government of India, the Finance Commission will also face challenges in determining how to share it with the states.
- The amendment related to Jammu and Kashmir is equally challenging as the creation of a separate mechanism.
- Many experts consider Section 83 of the Jammu and Kashmir Reorganization Act, 2019, which relates to the inclusion of Jammu and Kashmir in the ToR of the Finance Commission, as the ToR of the 15th Finance Commission has a total of 15 clauses and any state The name of the Union Territory is not included in these 15 sections.
- The states argue that the effect of such a provision would increase the number of claimants and decrease the amount of the individual share.
15th Finance Commission
- The Union Cabinet approved the constitution of the 15th Finance Commission on 22 November 2017.
- It is to be noted that the recommendations of the 15th Finance Commission will be implemented over a period of five years by the financial year 2020-25.
- So far 14 Finance Commissions have been formed. The recommendations of the 14th Finance Commission are valid for the financial year 2019-20.
- It is noteworthy that on November 27, 2017, Shri N.K. Singh has been appointed as the chairman of the 15th Finance Commission.
- Mr. NK Singh has been a former Secretary to the Government of India and a member of the Rajya Sabha from Bihar till 2008-2014.
- Under Article 280 of the Constitution, a provision has been made that a Finance Commission shall be constituted within two years from the commencement of the Constitution and thereafter at the end of every five years or at such time as it is deemed necessary by the President. .
- In view of this arrangement, within five years of the date of formation of the last Finance Commission, the next Finance Commission is formed, which is a semi-judicial and advisory body.
Why Finance Commission is required?
- The federal system of India allows the division of power and functions between the center and the states and on this basis the powers of taxation are also divided between the center and the states.
- State legislatures have the authority to delegate some of their taxation powers to local bodies.
- The center collects the majority of tax revenue and contributes to the economy at large through the collection of certain taxes.
- Knowing the local issues and needs closely, it is the responsibility of the states to take care of public interest in their areas.
- However, due to all these reasons, sometimes the expenditure of the state exceeds the revenue they receive.
- Furthermore, some states are unable to take advantage of adequate resources compared to others due to vast regional disparities. To overcome these imbalances, the Finance Commission recommends setting a limit on central funds to be shared with the states.
Functions of Finance Commission
- Recommending to the President of India how to distribute the net receipts of taxes between the Union and the States and how to allocate such proceeds among the States.
- Decide whether the grant / assistance should be given to the states from the accumulated funds under Article 275.
- Recommending necessary steps for augmenting the State’s Consolidated Fund for the supply of resources of Panchayats and Municipalities based on the recommendations made by the State Finance Commission.
- Any other specific instructions given by the President, which are in the interest of the strong finances of the country.
Powers of Finance Commission
- The Commission submits its report to the President, which the President puts before both houses of Parliament.
- An explanatory memorandum has to be submitted along with the recommendations presented so that the action taken in relation to each recommendation can be known.
- The recommendations made by the Finance Commission are of an advisory nature, it is up to the government to accept or not.
The Finance Commission performs an important task of maintaining the financial balance between the center and the state, and is therefore considered an integral part of the federal system. But some people believe that the Finance Commission is always burdened with the challenges of its subjects. The above amendments to the terms of reference of the 15th Finance Commission will further increase the burden of the Finance Commission. But it can not be denied that the Finance Commission is constituted for this purpose, it is also necessary for the federal structure of the country.
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