Discussing alternatives to base year, says 15th FC chairman N K Singh

N K Singh, chairman, 15th Finance Commission
Fifteenth Finance Commission Chairman N K Singh said on Friday that the commission and its economic advisory panel were discussing alternatives for a base year to build its recommendations on, given how unprecedented 2020-21 has been owing to the Covid-19 pandemic.

Singh said while no decision had been taken, there were deliberations on whether to take the first six months of 2021-22 or assumptions based on the past three years (2017-18 to 2019-20) as base year. 

On this, the 15th Finance Commission will build its projections and give its recommendations for 2021-22 to 2025-26.

Singh was addressing reporters through video-conferencing after a two-day meeting of the 15th Finance Commission’s economic advisory council.

“This is an unprecedented year and its uniqueness may pose problems getting selected as the base year. There have been various suggestions. One is to look to the first six months of 2021-22. But since we know very little about what will happen next year, we have to go by nominal projections. Another option is to look at past three years, and make some assumptions on that,” Singh said.

Singh admitted that such a move, if decided upon, will be a deviation from the norm. “Every finance commission has taken as base year the year in which it makes recommendations for the upcoming year onwards,” he said. The 15th Finance Commission is expected to submit its second report on October 31, and Singh added that there have been no discussions on extending the body’s term in light of the pandemic.

Singh said that while the current year and part of next year will see a continued slowdown, things could get better from the latter half of 2021-22, and the economy may grow at a rapid pace from thereon.

 “There has been evidence of recovery. Employment numbers have gone up sharply. The agriculture market is performing well. There is nothing to suggest that we will grow at anything apart from our potential growth rate after the crisis is over,” he said.

The two-day meeting of the advisory council included, apart from 15th Finance Commission members, Chief Economic Advisor Krishnamurthy Subramanian, economists Sajjid Chinoy, Prachi Mishra and Neelkanth Mishra (who are all economic advisors to the Prime Minister), Omkar Goswami, Rathin Roy, Arvind Virmani, DK Srivastava, M Govinda Rao, Sudipto Mundle, Shankar Acharya and Pronab Sen.

The participants deliberated that “the impact of the pandemic on the economy and on the fiscal positions of the Union and state governments is still highly uncertain. Many analysts and think-tanks have reduced their GDP growth projections for 2020-21. Due to the ongoing social distancing measures in place and local level restrictions in many places, supply chains are not yet fully restored. This affects the recovery process,” said an official statement.

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