Context – The Fifteenth Finance Commission led by Chairman N K Singh, submitted its Report to the President of India.
What are the key highlights of the latest report?
The Fifteenth Finance Commission led by Chairman N. K. Singh submitted its report for the period 2021-2026 to President of India. As per the Terms of Reference (ToR), the Commission was mandated to give its recommendations for five years, i.e., 2021-2026.
- Title of the report – ‘Finance Commission in COVID Times’and the scales are used to represent the balance between the States and the Union.
- The report is divided into four volumes.
- The Report is devoted to the Union Government and contains key departments in greater depth, with the medium-term challenges and the roadmap ahead.
- After the report is tabled in the Parliament, it will be available in the public domain.
Which issues are addressed in the report?
- The Commission submitted its report on vertical and horizontal tax devolution, local government grants, disaster management grant, incentives for States in many areas such as power sector, adoption of DBT, solid waste management etc.
- The Commission also submitted its report on whether a separate mechanism for funding of defence and internal security ought to be set up and if so how such a mechanism could be operationalized.
What are the key points in the report that can impact states revenue share?
- The Commission has addressed all its unique terms of reference such as considering a new non-lapsable fund for financing national security and defence spending, and offering performance incentives for States that deliver on reforms.
- The Fifteenth Finance Commission has considered the 2011 population along with forest cover, tax effort, area of the state, and “demographic performance” to arrive at the states’ share in the divisible pool of taxes.
- Cutbacks in devolution – Centre has systematically cut the share of States in taxes raised by the Union government.
- Shrinking of divisible pool- Centre has reduced the pool of funds to be shared with the States by shifting from taxes to cesses and surcharges.
The Centre can reduce States’ fears further by tabling the report soon so that any anxieties can be debated and laid to rest, and States can also plan upcoming Budgets with less uncertainty.