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Business News/ Economy / Centre to set up 16th Finance Commission by November end: Finance secretary
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Centre to set up 16th Finance Commission by November end: Finance secretary

The government is expected to constitute the 16th Finance Commission by the end of November, according to the finance secretary. The Finance Commission is a constitutional body that makes suggestions on Centre-state financial relations, including the division of tax between the Centre and states

TV Somanathan, the Secretary of Department of Expenditure said that Finance Commission expected to be constituted by November end (Ramesh Pathania/Mint)Premium
TV Somanathan, the Secretary of Department of Expenditure said that Finance Commission expected to be constituted by November end (Ramesh Pathania/Mint)

The 16th Finance Commission is expected to be formed by year end, to initiate the layout of centre-state financial relations for coming five years. Th Finance Commission will be formed by the end of November, said finance secretary T V Somanathan.

One of the main task of the Finance Commission is to suggest the ratio in which the tax will be divided between the Centre and states for five years, starting from April 1,2026.

"The Finance Commission is expected to be constituted by end of November because that's the statutory requirement," he told PTI in an interview. Till now, the Terms of Reference (ToR) for the commission is being finalised.

About 15th Finance Commission

The previous Finance Commission gave its report on November 9, 2020. The report was applicable for five fiscals, From FY 21-22 to FY 25-26. The report was submitted to the President in November 2020. The 15th Finance Commission operated under the leadership of N K Singh. It had kept the tax devolution ratio at 42 per cent -- at the same level suggested by the 14th Commission. 

The central government had accepted the report of the commission, and accordingly, the states were provided with 42 per cent of the divisible tax pool of the Centre during the period 2021-22 to 2025-26.

The 15th finance commission's recommendations also included the fiscal deficit, debt path for the Union and states, and additional borrowing room to states based on performance in power sector reforms.

Government's fiscal deficit target for FY 25-26

As per the glide path for fiscal consolidation, the government will strive to cut down the fiscal deficit to 4.5 per cent of gross domestic product (GDP) by the 2025-26 fiscal. For FY 23-24, the the deficit is projected at 5.9 per cent of GDP, which is lower than 6.4 per cent target set for the last FY ended in March 31, 2023.

T V Somanathan also said that the government will stick to the fiscal deficit target of 5.9 per cent of the GDP as robust tax, non-tax collections will help meet the spending requirement and make up for any shortfall in disinvestment proceeds. The shortfall with respect to disinvestment would be met by non-tax revenue mobilisation, he added.

"Disinvestment target is unlikely to be met. However, I would say in aggregate the collective amount between disinvestment and non-tax revenue is likely to be very close to the budget," he said.

The total of disinvestment receipts, plus non-tax receipts are likely to be very close to the Budget Estimates, he said. "We expect to adhere to our fiscal deficit target this year...none of the events so far have caused anything for us to deviate from it," he said.

Higher dividend received by the centre from RBI in FY22-23

In May, the Reserve Bank of India approved 87,416-crore dividend payout to the central government for 2022-23. The sanctioned amount was nearly triple of what it paid in the preceding year. The government was expecting 48,000 crore from the RBI, public sector banks and financial institutions in the current fiscal. Other than dividends from the RBI, the government is also expecting higher dividend from public sector banks and PSUs. For FY 21-22, RBI had paid dividend of 30,307 crore to the central government. This financial year, government's earning from banks is also expected to grow.

 

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Published: 20 Aug 2023, 02:27 PM IST
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