15th Finance Commission submits its report today: Key things to know

The NK Singh-headed 15th Finance Commission, the physique that decides the shares of the Centre and states in all taxes and revenues of the nation, will submit its closing report back to President Ram Nath Kovind at the moment (November 9). The report is unlikely to be made public anytime quickly and can presumably be tabled in Parliament, together with an action-taken report, by finance minister Nirmala Sitharaman when she presents the Union finances subsequent yr on February 1. The 15th Finance Commission’s report is important not solely as a result of the Union authorities’s relationship with states has frayed over fee of the Goods and Services Tax (GST) compensation cess, but additionally as a result of monumental pressures on revenues as a result of Covid-19 pandemic. Here are 5 issues to be careful for:

Smaller pie: At a time when the bottom of assets is shrinking as a result of pandemic, which has raised authorities expenditure, whereas slicing revenues, all eyes are on how a lot share in taxes the 15th Finance Commission’s report would suggest for the states. All earlier Finance Commissions have incrementally elevated states’ share within the pool of taxes. The 14th Finance Commission had advisable a quantum leap, rising states’ share by 10 share factors to 42%. One of the 15th Finance Commission’s mandates is to overview the 14th Finance Commission’s suggestions. In the interim report for 2020-21, states’ share was reduce to 41% due to the creation of latest Union Territories of Jammu and Kashmir and Ladakh. Any additional reduce will set off protest from states.

The 15th Finance Commission report might make historic suggestions within the space of public well being care. For the primary time, it would include a chapter on public well being care within the nation, well being infrastructure and spending. In an interview on July eight to HT, 15th Finance Commission’s chairman NK Singh had instructed that the fee was working in the direction of a financing mannequin to boost federal public-health spending to about 2.1% of the nation’s gross home product (GDP) over the subsequent 5 years. The whole expenditure on well being by the Centre and states for 2019-20 was Rs 2.6 lakh crore, or simply 1.29% of GDP, which is decrease than most peer nations.

To meet long-term bills for defence infrastructure, a key proposal by the Centre to the 15th Finance Commission is the creation of a non-lapsable defence and inner safety fund both via allocation from the divisible pool of funds shared by the Centre and states or via a cess. If that is accepted, it would create a everlasting defence fund for the nation.

Strained funds: Given the “shrinking base”, what states would get in absolute phrases will matter greater than their share share. Also, for the reason that pie is smaller, the grants element advisable by the 15th Finance Commission will turn out to be essential for states. The method on the grants element, which can be share quantities, will lend a “degree of sustainability, predictability and reduces volatility (in states’ finances),” an official advised HT on November 7, requesting anonymity.

Equity and equity: The Covid-19 pandemic introduced a novel problem earlier than the 15th Finance Commission. Its suggestions finally resolve the allocation of economic assets to states and the Centre which have a bearing on improvement spending, the bigger problems with life expectancy, well being, livelihood, financial and safety challenges. It has to make sure that the income pressures arising out of the pandemic are moderately addressed.