Fifteenth Finance Commission chairman N.K. Singh has called for a fresh look at the Constitution’s Seventh Schedule, which forms the basis for allocating subjects to the Centre and States, and hinted at the need to fill an ‘institutional vacuum’ created by the abolition of the Planning Commission.
Mr. Singh also stressed that a co-ordination mechanism between the Finance Commission and the GST Council had now become an ‘inescapable necessity’ as both were constitutional bodies dealing with revenue and grappling with ‘unsettled questions’.
“The symmetry in the working of the GST Council and the Finance Commission deserves serious consideration,” Mr. Singh said at FICCI’s annual general meeting on Friday.
“The Finance Commissions look at projections of expenditure and revenue, but issues of GST rates exemptions, changes, and implementation of the indirect taxes are entirely within the domain of the GST Council. This leads to unsettled questions on the ways to monitor, scrutinise and optimise revenue outcomes,” Mr. Singh noted.
A month after the Commission submitted its report to the government, following extended consultations with States, Mr. Singh said States were keen to have a different kind of ‘a policy-based consultative forum’ with the Centre beyond the Niti Aayog and the National Development Council.
“With the abolition of the Planning Commission, many economists and policy makers have argued about an institutional vacuum. We need to give serious consideration for a consultative forum for credible policy dialogue between the Centre and the States,” he said.
Urging a review of both the Seventh Schedule and Article 282 of the Constitution so as to give more flexibility to States in implementing centrally sponsored schemes, Mr. Singh said these issues needed urgent consideration to reinforce trust in fiscal federalism.
“Many have argued that the trust between various forms of government is waning. Are there new seeds of suspicion and mistrust? Are the existing arrangements governing Centre-State relations — legislative, executive and financial — envisaged in the Constitution adequate to meet the aspirations of Indian society?” he asked.
Mr. Singh also seemed to back the idea of linking the grant of fiscal headroom to States meeting specific reform outcomes, a term of reference for the Commission.
“The Union government recently allowed additional 2% borrowing for States in July based on universalisation of ‘One Nation, One Ration Card’, ease of doing business, power distribution and urban local body revenues. Performance and outcome-based flexibility for States undertaking market borrowing adds flexibility. A fiscal range than a fiscal point based on expenditure outcomes may be the need of the hour,” he said.