New Delhi: The Cabinet on Thursday approved the terms of reference for the 14th Finance Commission to suggest the formula for sharing of tax proceeds between the Centre and states for the five-year period beginning 1 April, 2015.
However, the notification was not posted on the Press Information Bureau website. A government official familiar with the development said Cabinet discussed and recommended some changes in the terms of reference. After inserting those changes, the final notification will be issued, the official said, requesting anonymity.
However, the chairman and the members of the commission could be notified separately, which will not require cabinet approval, the official said.
The 13th Finance Commission was headed by former finance secretary Vijay Kelkar. The other members of the committee were Indira Rajaraman, Atul Sharma and Sanjiv Misra. It raised the state’s share in net tax proceeds to 32.5% from the 31% set by the 12th Finance Commission led by C. Rangarajan.
The Kelkar Commision not only increased the share of urban areas nearly five times, it also moved away from fixed transfers to a formula (as a percentage share of the divisible pool of taxes). It also put in place incentives linked to performance metrics.
The terms of reference of each finance commission have widened over time and the new one may also see its role being expanded to take a closer look at green growth and challenges facing the state electricity boards, apart from its traditional role, said N.R. Bhanumurthy, professor of the National Institute of Public Finance and Policy.
The new commission may be asked to provide a fresh perspective on fiscal federalism, given the evolving Centre-state relationship as the latter have been complaining against former’s enchroachment onto state issues such as irrigation and health, Bhanumurthy said.
The 14th Finance Commission may also be asked to draw up a fiscal road map as the 13th was, even as the finance ministry is preparing to unveil a five-year fiscal consolidation road map, Bhanumurthy said.