The 15th Finance Commission headed by NK Singh, the body that decides the actions of the Center and the states on all the nation’s taxes and revenues, will present its final report to President Ram Nath Kovind today (November 9). The report is unlikely to be made public anytime soon and will likely be presented in Parliament, along with an action report, by Finance Minister Nirmala Sitharaman when she presents the Union budget next year on February 1. The report of the 15th Finance Commission is significant not only because the Union government’s relationship with the states has been eroded by the payment of the Goods and Services Tax (GST), but also because of the enormous pressures on revenues due to to the Covid-19 pandemic. Here are five things to keep in mind:
Smaller cake: At a time when the resource base is shrinking due to the pandemic, which has raised public spending while slashing revenue, all eyes are on the proportion of taxes that the 15th Commission’s report on Finance would recommend for states. All previous Finance Commissions have gradually increased the state’s share of the tax pool. The 14th Finance Committee had recommended a quantum leap, increasing the state’s share by 10 percentage points to 42%. One of the mandates of the 15th Finance Committee is to review the recommendations of the 14th Finance Committee. In the interim report for 2020-21, the share of the states was reduced to 41% due to the creation of new Union Territories of Jammu and Kashmir and Ladakh. Any further cuts will provoke protests from the states.
The Fifteenth Report of the Finance Commission can make landmark recommendations in the area of public health care. For the first time, it will contain a chapter on public health in the country, infrastructure and health spending. In a July 8 interview with HT, the chairman of the 15th Finance Commission, NK Singh, suggested that the commission was working toward a financing model to increase federal spending on public health to about 2.1% of gross domestic product. (GDP) of the country over the next five years. years. The total health spending of the Center and the states for 2019-20 was Rs 2.6 lakh crore, or just 1.29% of GDP, which is lower than most peer nations.
To cover the long-term expenses of defense infrastructure, a key proposal from the Center to the 15th Finance Committee is the creation of a non-traversable internal defense and security fund, either by allocating the divisible pool of shared funds. by the Center and the states or through a cess. If this is accepted, it will create a permanent defense fund for the country.
Strained finances: Given the “shrinking base,” what states would get in absolute terms will matter more than their percentage share. Also, since the pie is smaller, the grant component recommended by the 15th Finance Commission will be crucial for states. The focus on the donations component, which will be percentage amounts, will provide a “degree of sustainability, predictability and reduce volatility (in state finances),” an official told HT on November 7, requesting anonymity.
Equity and equity: The Covid-19 pandemic presented a unique challenge to the 15th Finance Commission. Ultimately, its recommendations decide the allocation of financial resources to states and the Center that influence spending on development, the biggest issues of life expectancy, health, livelihoods, economic and security challenges. It must ensure that revenue pressures arising from the pandemic are reasonably addressed.
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