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15th Finance Commission chairman N.K. Singh. Mint
15th Finance Commission chairman N.K. Singh. Mint

FFC focus on health spend

The report, to be submitted in Oct, may provide a fiscal cushion to account for the turn of events following covid-19

The 15th Finance Commission (FFC) will propose reprioritizing expenditure to try and make good the historical shortfall in spending on health by both the centre and states.

It will also recommend deepening the structural reforms undertaken in the economy.

While remaining committed to fiscal rectitude, the FFC’s final report, to be submitted next month, is also likely to provide a fiscal cushion to account for the turn of events following the covid-19 pandemic.

In an interview ahead of the final recommendations, FFC chairman N.K. Singh said the pandemic will define the “uniqueness" of this Commission.

“Each FC is unique in its own way. This FC’s uniqueness will be how we reasonably address the issue of the pandemic," Singh said.

Pandemic-induced lockdowns have forced disruption in supply chains leading to an unprecedented contraction in global economic growth. The degree of contraction has varied across countries, with India registering a 24% contraction in the first quarter.

“Clearly, there is huge uncertainty and huge vulnerabilities. Uncertainty in the sense that we do not know the path of the pandemic; we do not know when it will end, in what manner and what are the other consequences it will leave behind. The fiscal pressures in dealing with issues of livelihood are a totally new factor the Commission has had to deal with," Singh said.

According to Singh, one challenge has been to make good India’s historical shortfall in spending on health. The FFC has for the first time devoted an entire chapter on health, he said, and it will endorse spending at the level of 2.5% of GDP as envisaged in the 2017 health policy.

“The pandemic has highlighted the historical neglect of the health sector," he added.

Singh did not disclose whether the FFC will tie this spending to specific health objectives or merely provide markers. “It is an era of hybrids," he said.

The issue is potentially sensitive as states may object to guidelines on spending. The FFC has already had to deal with the contentious issue of the population after its terms of reference required it to ignore the accepted norm of using data from the Census in 1971 and instead adopt the one undertaken in 2011.

The Commission will submit by end October its recommendations on how central taxes should be distributed among Centre and states for the period of five years from FY22 to FY26. It has already submitted its first report for FY21, which has largely been accepted by the government.

As Singh pointed out, the huge uncertainty about growth revival even as the economy is projected to contract by double digits in FY21 has made the task of the Commission all the more challenging.

According to him, the Commission does not have the advantage of projecting the same rate of growth and tax buoyancy for the full five years as GDP growth may see a “huge rebound" next year in FY22, a slowdown in FY23 and then an acceleration again FY24 onwards.

“Also, we could not make one uniform growth assumption for Centre and states. We have to differentiate between fast-growing states and slower-growing states given the different characteristics," he said.

“It does not add up to a happy scenario. It is a bit of a complex dynamics."

Singh expects India’s debt-to-GDP ratio to rise from its current level of 85% due to the fiscal pressures brought on by the pandemic.

“The best that we can do in the recalibration of the fiscal consolidation road map is if we can change the direction of the needle. That itself will not be a small achievement," he added.

Singh indicated that the fiscal deficit will be prescribed as a range, instead of a specific target.

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