Reserve Bank of India (RBI) governor Shaktikanta Das called for a permanent status to Finance Commission and a robust expenditure planning without compromising on fiscal consolidation as fiscal federalism gathers momentum in the era of uniform goods and services tax (GST).
Das who is also a member of the 15th finance commission said there is a need to ensure consistencies between finance commissions so that there is some certainty in the flow of funds to states.
“This has become even more critical in the post GST scenario. In other words, there has to be continuity and change between finance commissions. Increasingly, therefore, it is felt that there is a need to give permanent status to the finance commission. The commission can function as a leaner entity in the intervening period till the next finance commission is set up in a full-fledged manner. During the intervening period, it can also address issues arising from implementation of the recommendations of the finance commission,” Das said in his first speech as RBI governor.
He was introducing former RBI governor YV Reddy’s co-authored book called Indian Fiscal Federalism.
Das said the challenge for the GST Council now is to realise the full potential of GST for enhancing tax-GDP ratio and work on other areas of India’s economy to enhance its competitiveness.
Das also called for the constitution of state finance commissions every five years.
He however pointed out that India is a union of states in which both the centre and the states have to be fiscally strong.
“Co-operative federalism should not, however, breed inertia. Alongside co-operative federalism, there has to be competitive federalism,” Das said.
He called for more robust expenditure planning so that the goals of fiscal consolidation are not diluted.
“While adhering to fiscal deficit targets and debt to GDP ratios, it is equally important to undertake robust expenditure planning based on a ‘commonly agreed expenditure code’ to address the socio-economic challenges without diluting the goals of fiscal consolidation,” Das said.