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N.K. Singh, as chairman of the 15th Finance Commission, has been tasked with looking into the impact of GST on the finances of the centre and states. Photo: HT
N.K. Singh, as chairman of the 15th Finance Commission, has been tasked with looking into the impact of GST on the finances of the centre and states. Photo: HT

15th Finance Commission to examine performance incentives for states

The government has asked the 15th Finance Commission to offer fiscal incentives to state that perform well on parameters such as improvements in ease of doing business and GST implementation, and rein in populist measures

New Delhi: Seeking to strike a balance between the rights and responsibilities of states in a federal structure, the centre has asked the 15th Finance Commission to offer fiscal incentives to states that perform well on parameters such as improvements in ease of doing business and sanitation, and rein in populist measures.

Former revenue secretary N.K. Singh, who is also a member of the ruling Bharatiya Janata Party, was on Monday named head of the commission, whose terms of reference were notified by the Narendra Modi government.

Apart from Singh, members of the commission include former economic affairs secretary Shaktikanta Das and adjunct professor at Georgetown University Anoop Singh. Bandhan Bank chairman and former chief economic adviser Ashok Lahiri and Niti Aayog member Ramesh Chand have been appointed part-time members. The commission, whose recommendations will come into effect for the five years starting 1 April 2020 has been asked to submit its report by 30 October 2019.

Apart from performing its constitutionally mandated job of deciding on the distribution of shareable central tax proceeds among centre, states and local bodies for the first time in the post goods and services tax (GST) era, the 15th Finance Commission has been asked to recommend appropriate levels of general and consolidated government debt and deficit levels for the centre and states.

The commission will arrive at the figures after reviewing the state of finances, deficits, debt levels, cash balances and fiscal discipline efforts by the central and state governments.

The commission has also been asked to propose measurable performance-based incentives in areas such as efforts made by the states in expansion and deepening of the tax net under GST, and efforts and progress made in moving towards replacement rate of population growth, which refers to the total fertility rate that will result in a stable population without increasing or decreasing it.

Other parameters include progress made in increasing tax/non-tax revenues, promoting savings through adoption of direct benefit transfers, promoting a digital economy and removing layers between the government and beneficiaries of welfare programmes.

The 15th Finance Commission will also consider achievements made by states in implementation of flagship central schemes and disaster resilient infrastructure, reaching sustainable development goals, and quality of expenditure. Progress made in increasing capital expenditure, improving the quality of such expenditure and promoting labour-intensive growth have also been included in the terms of reference for the commission.

Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant systems in improving delivery of services; progress made in improving sanitation, solid waste management and bringing in behavioural change to end open defecation; control or lack of it in incurring expenditure on populist measures will also count in fiscal allotments.

The 14th Finance Commission, chaired by former Reserve Bank of India governor Y.V. Reddy, is considered to have fundamentally reset the centre-state fiscal relationship by raising the untied share of states in net central taxes to 42% from 32% after ending discretionary resource transfers from the centre to the states.

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