Read Editorial with D2G – Ep 513

Read Editorial with D2G – Ep 513

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Navigating the storm: On the Fifteenth Finance Commission

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Meanings are given in BOLD

A pair of balanced scales representing the Union of India and the States, the cover visual of the Fifteenth Finance Commission’s report for the period 2021-22 to 2025-26, seeks to highlight the Commission’s endeavour ( try hard to do or achieve something ) to maintain an equitable ( fair and impartial ) approach at a time when the Centre and States are facing unprecedented ( never done or known before ) revenue stress and fiscal demands.

The Centre has accepted much of the Commission’s broad recommendations, including giving States a 41% share of the divisible pool of taxes and revenue deficit ( the amount by which something, especially a sum of money, is too small ) grants of nearly ₹2.95-lakh crore for 17 States over the next five years. It has also acceded ( agree to a demand, request, or treaty ) to the Commission’s suggestion to make grants ( agree to give or allow (something requested) to ) towards urban and rural local bodies conditional upon States setting up their own finance commissions and publishing online the accounts of local bodies.

And 60% of these grants will be further linked to these bodies’ providing sanitation and water services. There is an ‘in-principle’ nod to the panel’s suggestion to set up a non-lapsable dedicated fund to support defence and internal security modernisation ( the process of adapting something to modern needs or habits ) — a response to the Centre’s belated request to examine if such a fund can be considered for funding defence capex ( capital expenditure ) beyond normal Budget allocations.

While the panel has suggested moving ₹1.53-lakh crore out of the Consolidated ( make (something) physically stronger or more solid ) Fund of India over five years to partly finance this, the Centre has said the funding nitty-gritties ( what is essential and basic ) will be examined later. States would monitor how the modalities ( a particular mode in which something exists or is experienced or expressed ) here evolve, even as they have reason to fret ( be constantly or visibly anxious ) about the Centre’s non-committal response to the Commission’s recommendations of sector-specific and other grants for them adding up to about ₹1.8-lakh crore.

It is up to the Centre now to ensure that States do not feel short-changed from the new fiscal framework, given their frayed ( showing the effects of ) ties over GST compensation dues. States have also been steadily losing out, given the Centre’s penchant ( a strong or habitual liking for something or tendency to do something ) to raise more cesses and surcharges ( an additional charge or payment ) that do not have to be shared.

This Budget has seen an encore ( additional performance ) with the agriculture infrastructure development cess ( a tax or levy ). One wishes the Commission had at least noted its displeasure on this practice, like its predecessors ( a person who held a job or office before the current holder ) did. Unlike them, however, the N.K. Singh-led panel had to cope with a tumultuous ( excited, confused, or disorderly ) shift in the domestic and global macro-economic landscape.

At home, the Planning Commission was dissolved and GST introduced. The panel’s tenure was extended by a year, requiring it to give an interim report first, with its work culminating ( reach a climax or point of highest development ) in a virtual zero-visibility zone as the COVID-19 pandemic broke out months before its deadline. Given these pressures and the difficulties in projecting the economy’s path, the Commission has done well.

It has resisted ( withstand the action or effect of ) the Centre’s nudge ( approach (an age, figure, or level) very closely ) to review what it felt was a too-generous 42% share granted to States by the previous Commission, and deftly ( in a clever way ) dealt with most of the unusual terms of reference foisted ( impose an unwelcome or unnecessary person or thing on ) on it.

As N.T. Rama Rao said, India lives in the States. If the Centre takes them along, it might help attain the balance envisaged ( contemplate or conceive of as a possibility or a desirable future event ) by the Commission, which is needed to drive the country onto a double-engine growth trajectory ( the path followed by a projectile flying or an object moving under the action of given forces ) from the current nadir ( the lowest or most unsuccessful point in a situation).

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