15th Finance Commission : Key Terms of Reference

The presidential terms of reference (ToR) of the Fifteenth Finance Commission have raised questions. Southern states have raised objections over the directive to use population data in the ToR from the 2011 Census and not the 1971 Census that was used earlier.

The terms of reference of the 15th finance commission raises questions about constitutional propriety which goes beyond the concern of population data. The contentious issues in the terms of reference are asking the commission

  • To examine whether revenue deficit grants be provided at all
  • To consider the impact of [the] fiscal situation of the Union government of substantially enhanced devolution by the Fourteenth Finance Commission, coupled with continuing imperative of the national development programme including New India 2022.
  • To look at the conditions that may be imposed by the Central government while providing consent to States when they borrow under Article 293(3).
  • To propose measurable performance-based incentives to States in respect of a number of areas such as the implementation of flagship schemes, progress towards replacement rate of population growth, a control or lack of it in incurring expenditure on populist measures
  • Promoting ease of doing business

These terms of reference raise question of constitutional propriety

  • Term of reference which asks to examine whether revenue deficit grants be provided at all, questions the very objective of Article 275 which enables the Commission to give grants to offset post-devolution gaps between normatively assessed revenues and expenditures.
  • The ToR seek to reduce the role of Article 275, which is a legitimate channel for grants, and asks the Commission to leave it more fiscal space to expand grants under Article 282, which is questionable.
  • Asking the Commission to take into account the performances in implementation of various Central schemes is equally contentious. Performances must be built into the implementation of schemes and not into the tax devolution formula.

Cooperative federalism also demands cooperation between the states. The states must come together to get the issue terms of reference addressed which raise the questions of constitutional propriety. [The Hindu]

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