Can terms of reference of Finance Commissions be changed? Yes, say experts

Finance Minister Arun Jaitley
There are precedents for changing the terms of reference (ToRs) of finance commissions, which is a moot point in the current context of various non-Bharatiya Janata Party states demanding alteration in what the 15th Finance Commission has been asked to recommend. 

Experts say Presidents have added or modified ToRs of the Commissions, even as there could be a debate over the concerns of those criticising various specific tasks and references that were given to the 15th Finance Commission. 

For example, with the creation of the state of Telangana, additions were made to ToRs of the 14th Finance Commission to make recommendations for the newly created states after the reorganisation of Andhra Pradesh.

In fact, the 14th Finance Commission, headed by former Reserve Bank of India Governor Y V Reddy sought an extension of two months to submit its report in order to examine financial projections and to carry out consultations with the governments of Andhra Pradesh and Telangana.

Rather than submitting its report on October 31, 2014, the Commission had submitted its report on December 15, 2014.

Additions were also made to the ToRs of the 11th Finance Commission. These additions were to allow the Commission to award performance based revenue deficit grants.

The presidential order by K R Narayanan, dated April 28, 2000, stated that “in particular, the Commission shall draw a monitorable fiscal reforms programme aimed at reduction of revenue deficit of the state and recommend the manner in which the grants to states to cover the assessed deficit in their non-Plan revenue account may be linked to the progress in implementing the programme.”

Also, there are revenue deficit grants given to states to bridge the deficit arising on account of Finance Commission recommendations. The 15th Finance Commission has been asked to review this. The states are opposing this ToRs as well.

Government officials maintain that in spite of the criticism by some of the states, the ToRs will not be amended.

The most contentious issue is the use of the 2011 population census with southern Indian states among a few others fearing that they will be discriminated against. The states also want to go back to using the 1971 census.

Finance Minister Arun Jaitley had responded last month to the issue and had said that the ‘controversy’ around the ToRs was a ‘needless’ one and that there is no inherent bias or mandate in the terms which can be construed as discriminatory against states that have made good progress in population control.

States, that met in Andhra Pradesh’s new capital Amaravati on Monday, demanded that they should not be judged on the basis of Narendra Modi government’s ‘New India 2022’ development goals or on implementing central schemes, or on to what extent they have deepened the goods and services tax net.

Among the ToRs provided to 15th Finance Commission, it has been mandated with considering measurable performance-based incentives for states. The parameters on which they could be measured include how well they implement the flagship schemes of the central government, and control or lack of it in incurring expenditure on populist measures.

They also said that Union Territories with legislatures, like Delhi and Puducherry, be considered by the 15th Finance Commission.

The meeting was attended by Andhra Pradesh Chief Minister Chandrababu Naidu, Andhra Pradesh Finance Minister Yanamala Ramakrishnudu, West Bengal Finance Minister Amit Mitra, Punjab Finance Minister Manpreet Singh Badal, Puducherry Chief Minister V Narayanasamy, and Delhi Deputy Chief Minister Manish Sisodia. Poll-bound Karnataka is also part of this grouping. However, no one from the state could attend the meeting due to the ongoing election campaign.

The meeting also wanted a review on the overall funds’ flow to states during the 14th Finance Commission period as the states feel they got a raw deal due to cut in assistance to centrally sponsored schemes despite the increase of share in central taxes to 42 per cent. 

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