Will take judicious view of states seeking higher funds: NK Singh, Chairman, 15th Finance Commission


The 15th Finance Commission will submit its report by October and is doing its last few rounds of statewide consultations. Chairman of the Commission
NK Singh tells ET’s
Anubhuti Vishnoi that the report will take a ‘judicious view’ of the near unanimous demand by states to up allocation to 50% from 42% and on objections to ‘New India-2022’ expenditure sought by the Centre. Edited excerpts…

On states’ demand for increasing allocation from 42% to 50%
I have yet to meet any state which has not asked for it. Point is which central government would clap their hands in joy that they should be nudged in the direction of what the states have asked for and not nudged in the direction that maybe 42% itself is over the top.

The applicants will want to maximise what they can get out of us. This is perfectly understandable. I am not commenting at all on the quality of programmes states want to undertake. I am sure they have great importance, but we will have to take a judicious view.


On the states’ objections to ‘New India’ expenditure by the Centre
These have been listed in the nature of national priorities and most of this indeed do constitute national priorities – education, health, sanitation, drainage, drinking water. Now, whether they should be centrally sponsored or not is another matter – we will definitely look at each of these issues closely

‘Populist’ expenditure
We will address that and have also asked for a study. There are examples of what can begin as populist and later become generic. The mid-day meal was denounced by everybody when Tamil Nadu launched it, but the country has now found it worthwhile of retention and higher enrolment of children in schools.

CM Nitish Kumar and MP government’s demand to increase fiscal deficit ceiling
The NDA has an indelible track record of being a great believer in the path of fiscal rectitude and PM Modi himself – despite so much provocation – remained firm and unwavering. Hence, the FRBM committee recommendations were quickly processed and the Finance Bill 2018 is virtually a mirror of what the committee recommended. I doubt they would want to change an Act so recently enacted by Parliament.

On the three principle ingredients – of debt as a principle macro-economic anchor and given our level of per capita income – we are not even a middle-income country as yet; 60% debt to GDP is an appropriate debt for a country of this size. To enable this to be realised in a particular time frame, the targets in the fiscal deficit should be 3% going down.

FC report reflecting concerns on GST
Certainly, you will see several suggestions on GST. I wrote to the former FM as well as the current one on the need for a dialogue and a consultative mechanism between the GST Council and the Commission. I have reasons to believe that the FM is considering this recommendation favourably. We hope to begin this dialogue process soon where we will be putting across our own point of view on how we believe that the GST can be simplified, rationalised and made more revenue positive.

I fully agree with what former FM Arun Jaitley has said in his latest blog on further rationalisation of rate structure, progressive elimination of exemptions, and of course ensuring quality of compliance, especially in view of invoice manipulation and leakages.

CSS scheme rationalisation
One, some CSS schemes have become enlarged and the money has become more thinly spread. Two, the sharing pattern between Centre and states has not necessarily worked in favour of the states. Third, the outcome of many of these schemes has become more and more dubious. Since the CSS lifecycle is now co-terminus with that of the Finance Commission – in this case, the 14th FC which is drawing to a close – this is an opportunity for a much more fundamental review. Considerations such as duplication, congruence between outlay and desired outcomes and even a possible financial threshold may be a more useful way forward.

Current state of the economy
I remain optimistic on overall growth trends. The medium term looks to be positive that we will certainly grow at 7%-plus – if there is deeper structural reform – which I believe that this government will be inclined to address.

Problem areas
One is how credible are the numbers of 3.4% of fiscal deficit. Some people have raised concerns about whether all contingent liabilities have been fully captured, given the fact that there is carry forward of some unpaid bills and there are some off-budget borrowings.

The second concern is related to states – while the Centre is likely to achieve the 40% debt to GDP by 2024-25, the possibility of each of the states achieving it is impractical. We will, in fact, recommend states to amend their FRBM Act to align with the Finance Bill 2018.

Then, the worry on revenue numbers; they do not look as optimistic. With most states taxes now subsumed by GST, the states have expressed their worry on either extending the period of 14%, or finding a different formula – Madhya Pradesh, for example, has said that instead of 50:50, let’s do 60:40 and so on.

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