Need For ‘Symmetry’ Between GST Council And Finance Commission: NK Singh 

Veteran bureaucrat NK Singh, who is heading the Fifteenth Finance Commission, has called for greater symmetry in the working of the GST Council and the finance commission.

Speaking at the Reserve Bank of India in Mumbai, Singh said that while the finance commission is tasked with distribution of revenue between the union and states for a five-year period, decisions made by the GST Council can lead to a shift in balance in the time-period when the commission’s recommendations are in play.

“The finance commissions recommend distribution of revenues between the union and the States and thereafter, among the states further to the third tier. They look at projections of the expenditure and revenue, but issue of GST rates exemptions, changes, and implementation of the indirect taxes are entirely within the domain of the GST Council,” Singh said. “This leads to unsettled questions on the ways to monitor, scrutinise and optimise revenue outcomes.”

He added that since both the finance commission and the GST Council are constitutional bodies, the coordination mechanism between the two is now an “inescapable necessity”.

The Fifteenth Finance Commission was expected to submit its recommendations by October but was given an extension till November. The commission may not be able to complete its work even this month and may submit an interim report, BloombergQuint reported.

One of the issues that the commission is grappling with, according to Singh, is the guaranteed compensation for states for the first five years after the implementation of GST. That arrangement is set to come to an end in 2022.

“But many states are seeking an extension of this mechanism thereafter,” said Singh. “As far as the finance commission is concerned, the road map on this has a bearing on the recommendations which it is expected to make on the likely revenues of states...” he added.

The commission is also debating the issue of centrally sponsored schemes. These are schemes which are promoted by the central government but funded by both the union and the states. The commission is set to review whether some of these schemes have outlived their utility.

Singh called for a “far more credible policy for rationalisation of centrally sponsored schemes and central outlays”, while noting that the NITI Aayog, which replaced the Planning Commission, is more a think tank than a financial body.

“There is no central entity now for an overview of the centrally sponsored schemes and how many and in what form many of these could be amalgamated with central sector outlays. We need to constitute an empowered group of domain experts to submit to the finance minister and prime minister on modalities of further and deeper rationalisation of these centrally sponsored schemes,” Singh said.

State-Level Debt

The issue of debt at the level of the union and states is one that is being debated by the finance commission.

One of the ‘Terms of Reference’ given to the commission is to review the current debt levels of central and state governments. An earlier Fiscal Responsibility and Budget Management review committee, also headed by Singh, had recommended that the general government debt be brought down to 60 percent of GDP by FY25.

As part of this states were required to bring down debt to 20 percent of GDP, while the central government was given a target of 40 percent. The complexity in reducing state government debt arises from the varying debt levels across states.

The outstanding liabilities of the state governments stood at 25.1 percent of gross state domestic product in 2017, with a range of 42.8 percent in Punjab and 17 percent in Chhattisgarh, showed the RBI’s latest study on state finances.

“Aligning the fiscal and debt path of both the centre and the states is an arduous but inescapable task. A differentiated debt path of States which recognises the present constraints and issues of legacy debt must be handled with sagacity and sensitivity,” Singh said.

Singh concluded his speech by saying that the “facts and circumstances” on fiscal federalism have changed and the system must respond accordingly. “Living in a deceitful world of oneupmanship either among the states or between the states and the centre will only detract our ability to realise India’s growth potential,” he said.