The Chairman of 15th Finance Commission, NK Singh, called on the Reserve Bank of India (RBI) Governor, Urjit Patel, in Mumbai on Thursday. During the course of the discussions, they discussed the technical and other assistance which the RBI could give enabling the Commission to discharge its wide-ranging terms of reference. The RBI has the data and technical specialty in matters relating to overall finances. The emerging fiscal scenario and the RBI’s State Finance Division is a rich repository of information on State finances over a long period of time. Singh said, “Commission would be greatly benefitted by the analytical and domain knowledge of the RBI in these specialized areas.” RBI could also assist the Commission in the preparation of analytical papers and analysis on some of the complex issues which the Commission would need to address in its Terms of Reference, NK Singh concluded. Arvind Mehta, Secretary to the 15th Finance Commission was also present at this meeting.
The Cabinet Committee on Economic Affairs (CCEA) last week approved a proposal to set up of the 15th Finance Commission (FC) and finalise its terms of reference, finance minister Arun Jaitley had said on November 22 after a meeting of the Union Cabinet. The FC is formed every five years to recommend principles governing the allocation of tax revenue between the Centre, states and local bodies. The recommendations of the previous 14th FC, headed by former RBI governor YV Reddy, are currently valid for a period of five years through March 2020. In the Budget 2017-18, the government had allocated Rs 10 crore for setting up of the 15th FC.
The 14th FC had suggested an unprecedented 10 percentage points rise in tax devolution to states to 42% of the divisible pool of the tax revenue between FY16 and FY 20, compared with the previous five-year period. It was accepted by the Narendra Modi government as it batted for cooperative federalism.
The commission will review the current status of the finance, deficit, debt levels, cash balances and fiscal discipline efforts of the Union and the states. It will also recommend a fiscal consolidation roadmap for sound fiscal management. The commission is required to make recommendations on the distribution of the net proceeds of taxes between the Centre and the states, as per Article 280 of the Constitution. The commission also suggests the principles which should govern the grants in aid of the revenues of the states out of the Consolidated Fund of India.