15th Finance Commission gets more time to submit report

15th Finance Commission chairman NK Singh (Abhijit Bhatlekar/Mint)

NEW DELHI : The Union Cabinet on Wednesday approved the extension of the term of the Fifteenth Finance Commission to submit its report, setting 30 October, 2020 as the new deadline. This is the second extension for the Commission which was due to submit the report by 30 November. The N. K. Singh-headed Finance Commssion will now present the final report covering financial years 2021-22 to 2025-26 (April-March).

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 Commission, on account of the restrictions imposed by the Model Code of Conduct due to October elections in Maharashtra, completed its visit to states only recently. This has had a bearing on the detailed assessments of states requirements, a government release said.

The terms of reference for the commission are wide-ranging in nature. Comprehensively examining their implications and aligning them to the requirements of the states and the central government will require additional time, the release said.

The proposed increase in coverage of the period for which the Commission’s recommendations are applicable, will help medium-term resource planning for the state governments and the centre.

Making a five-year coverage available for the Commission beyond 1st April 2021, will help both state and central governments design schemes with medium- to long-term financial perspective and provide adequate time for mid-course evaluation and correction. It is anticipated that the impact of the economic reforms initiated in the current financial year would be manifested in the data by the end of first quarter 2020-21.

Finance Commission Chairman Singh last week sought a leverage with the Goods and Services Tax (GST) Council, arguing that tax rate cuts and grant of exemptions decided solely by the council affect the FFC’s goal of optimizing revenue targets of the Centre and states.

The Finance Commission looks at projections of revenue and spending, but GST rates, exemptions, changes and implementation are the domain of the GST Council.

According to Singh, the demand from states for extending the GST compensation given to them for revenue shortfall beyond the currently agreed 2022 will also have a bearing on the formula the FFC is set to recommend shortly on how the Centre should share its tax revenue with states.

This extension in tenure of the Finance Commission seems to have been necessitated by the bifurcation of Jammu and Kashmir and change in its status to a union territory (UT). However, the press statement was silent on it.

As per the structure, finances for a UT go from the centre’s kitty. Since the state was bifurcated with effect from 31 October, mid-way through the financial year, the Commission is now tasked with re-working those numbers as well.