No word from govt on 6th finance panel recommendations

CHANDIGARH : A year after the 6th State Finance Commission (SFC) submitted its report, the Punjab government has kept the commission’s recommendations on fiscal consolidation and devolution of funds to municipal bodies and the action taken thereon under wraps.

The commission’s report is to be presented by the state government to the state legislature along with the explanatory memorandum and action taken report (ATR) on the recommendations, but there is no word on it so far. The commission headed by former chief secretary KR Lakhanpal had submitted the report to Punjab governor Banwarilal Purohit for the period from 2021-22 to 2025-26 in the last week of March 2022, making a slew of substantive recommendations on the state finances and the devolution of tax revenues and their apportionment between the panchayati raj institutions (PRIs) and municipal bodies in the state.

A senior officer said the government has decided ‘in principle’ to accept several recommendations made by the 6th Punjab Finance Commission, but the report has not been tabled till now because the final approval is awaited. “Once the approval is received, the report will be put up before the cabinet and then presented to the state legislature along with the explanatory memorandum,” said the officer privy to the status of the report, refusing to share any details. In January 2021, the commission had given an interim report with seven recommendations for 2021-22. The then cabinet led by Capt Amarinder Singh accepted six recommendations and set up a group of ministers to examine the last one relating to the devolution of 4% of own share of taxes to local bodies but it was not implemented.

Lakhanpal said that by not processing and implementing the recommendations of the 6th State Finance Commission despite the report having been submitted more than a year ago, the state is not only violating the Constitutional provisions but is also risking the local bodies being deprived of the grants-inaid amounting to about ₹2,000 crore per annum recommended by the 15th Central Finance Commission (CFC). The CFC had, in its report to the central government, recommended that all states much constitute SFCs, act upon their recommendations and lay the explanatory memorandum as to the ATR thereon before the state legislature on or before March 2024.

“After March 2024, no grants should be released to a state that has not complied with the Constitutional provisions in respect of the SFC and these conditions. The MoPR (Ministry of Panchayati Raj) will ensure compliance of all the Constitutions provisions by a state in this respect before the release of their share of grants for 2024-25 and 2025-26,” it said.

The commission is learnt to have recommended the devolution of 3.5% of the state’s net own tax revenues, estimated at ₹7,704 crore for the period from 2021-22 to 2025-26, to the panchayats and urban local bodies (ULBs) be distributed between them in the 55:45 ratio. Of this, the share of the panchayats and municipalities was worked out at ₹4,237 crore and ₹3,467 crore, respectively, according to sources privy to the information. Another suggestion, according to them, is that 10% of proceeds of stamp duty and registration fee may be appropriated by the local bodies on the basis of actual realisation and a 2% share of VAT on petroleum products on the basis of its realisation in the rural areas be allocated to gram panchayats only.

On fiscal consolidation, the commission is learnt to have recommended a five-percentage point reduction in the debt to gross state domestic product (debt-GSDP) ratio and yearly targets for zero revenue deficit by the financial year 2025-26. The commission’s report and suggestions are important as the state has been in the throes of a severe financial crisis in the past few years with a mountain of debt.

The past track record of the state in the implementation of the recommendations of the SFCs has, however, been abysmal. The recommendations of the 4th SFC (2011-12 to 2015-16) were accepted by the then SADBJP government but nothing much was done for their implementation.

As for the 5th SFC (2016-17 to 2020-21), the action-taken report also only summarised the recommendations with nothing to indicate the action taken and no funds were transferred.

The state is not only violating the constitutional provisions but is also risking the local bodies being deprived of the grants-in-aid by not implementing the recommendations of the commission. KR LAKHANPAL