Cabinet extends tenure of 15th Finance Commission
NEW DELHI: The Union cabinet chaired by Prime Minister Narendra Modi on Wednesday extended the tenure as well as the reward period of the Fifteenth Finance Commission (FFC) by another year.
It asked the FFC to submit its first report for 2020-21 and the final report for 2021-2022 to 2025-26 by October 30 next year. Thus, the reward period of the current FFC will be six years instead of the usual five years.
The FFC is expected to submit its first report to the president soon. It will not be made public before the government tables it in Parliament. An FFC official speaking on the condition of anonymity said it has asked for time from the president’s office to submit the report but is yet to hear back. “The first report will be fullfledged and comprehensive. The formulae used in the first report may change in the second report, depending on the circumstances at that time,” the official added.
This extension in tenure of the FFC seems to have been necessitated by difficulties in mediumterm projections given the economic uncertainties as well as the bifurcation of Jammu and Kashmir and change in its status to a union territory. However, a press statement on the matter is silent on it. The Cabinet statement said the FFC, on account of the restrictions imposed by the Model Code of Conduct, had completed its visit to states only recently. “This has had a bearing on the detailed assessments of States requirements,” it added.
“The extension of the term will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2026,” the statement said.
DK Srivastava, chief policy adviser at EY India and former member of the 12th finance commission said the 9th Finance Commission also got a tenure of six years, beginning 1989-90. “The stated objective was to synchronise it with the plan period. That argument does not hold now,” he added.
Srivastava said the economic slowdown and revenue uncertainty due to changes in corporate taxes may have prompted the government to extend the reward period of FFC to gauge the revenue impact of the changes.
The Indian economy has slowed down to its lowest level in six years to grow at 5% in the June quarter. Most forecasts have drastically cut growth projections for 2019-20 to below 6% and expect the economy to have grown below 5% in the September
CABINET HAS ASKED THE FFC TO SUBMIT ITS FIRST REPORT FOR 2020-21 AND THE FINAL REPORT FOR 2021-2022 TO 202526 BY OCT 30 NEXT YEAR
quarter, data for which will be released on Friday.
Rating agency Moody’s Investor Services on Wednesday said persistent spending pressures and slowing economic growth will keep state-level deficits high at about 3% of GDP for the fiscal year ending March 2020. “The outcome of the pending Fifteenth Finance Commission will impact the outlook for state-level deficit reduction from 2020 onward. With policies unchanged, however, we expect state deficits to persist around current levels this year and next, which will make India’s general government fiscal consolidation efforts even more challenging and keep its debt burden elevated,” the rating agency said.
States have budgeted a consolidated fiscal deficit of 2.6% of GDP for fiscal 2020, below the current mandated cap of 3% of GDP.
“Indian states do not generate sufficient own source revenue to cover their spending needs, and the introduction of the GST earlier in 2017 has further increased states’ reliance on central government transfers,” said Gjorgji Josifov, a Moody’s assistant vice president and analyst.