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Fifteenth Finance Commission chairman N.K. Singh (HT)
Fifteenth Finance Commission chairman N.K. Singh (HT)

15th Finance Commission set to submit report on 9 November

However, the report of the Commission with recommendations for next five years beginning FY22 is unlikely to be made public anytime soon

NEW DELHI: The 15th Finance Commission (FFC), which decides devolution of resources to states from the Centre, is all set to submit its report to president Ram Nath Kovind on 9 November. This, after it finalized its recommendations on Friday, at a time the Centre-state relationship has hit a low over Goods and Services Tax (GST) compensation cess.

The report of the Commission with recommendations for next five years beginning FY22 is however unlikely to be made public anytime soon and may be tabled in the Parliament along with action taken report by the government on 1 February next year when finance minister Nirmala Sitharaman presents her third budget.

In its first report, the FFC marginally cut resource allocations to states to 41% of the divisible pool of central taxes from 42% earlier as Jammu & Kashmir and Ladakh were made union territories. Apart from deciding the formula for dividing the financial resources between the Centre and states at a time finances have been considerably strained for both sides, the FFC report may prove seminal for its recommendations on the health and defence sectors. The coronavirus pandemic is expected to dominate the recommendations of the FFC including ways to strengthen health infrastructure across states. The FFC recommendation may also lead to a formation of a non-lapsable defence and internal security fund either through allocation from the common pool of funds shared both by the centre and states or through a cess imposed by the centre.

"This FC’s uniqueness will be how we reasonably address the issue of the pandemic and what are the ways in which the issues the country is currently facing such as life expectancy, livelihood, economic challenges and security challenges have been addressed in a responsible and appropriate manner. We hope that we will be able to persuade all stakeholders that we have sought to address the issue of the pandemic in a responsible way. That, as a commission, we have treated states with the consideration as we have treated the Union," Singh said in an interview with Mint in September.

D.K. Srivastava, chief policy adviser at EY India, said how the FFC addresses the challenge of distributing the shrinking pool of resources to states due to the coronavirus pandemic will be closely watched. “The challenge of forecasting tax revenues of the central government is quite unprecedented for the FFC as compared to the earlier Commissions. Though central tax revenues started to fall after GST was implemented, in the Covid year, the fall has been extremely sharp. Therefore, the pool of available resources which are to be distributed among the states has shrunk very sharply. Therefore, the anticipation is about how the FFC would distribute it equitably among the states amidst such a shrinking pool of resources," he said.

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