The Fifteenth Finance Commission will soon set up a panel to address issues related to fiscal policy for both the Centre and the States, and present a road map for the same.

About the fiscal committee

  • It is a broad-based committee which will address some of the issues on fiscal policy, including the debt and the deficit of the States as well as the Central government.
  • There is a need to have a fiscal road map that covers the Centre and the State government.
  • The panel will be headed by commissions Chairman N.K. Singh and have representation from the Comptroller and Auditor General of India, the Reserve Bank of India, the Ministry of Finance, the Fiscal Responsibility and Budget Management (FRBM) panel and some of the States.

About group on defence and internal security:

The Commission had also constituted a group on defence and internal security, whose mandate will be ‘to examine whether a separate mechanism for funding of defence and internal security ought to be set up.

  • This group will be chaired by Mr Singh with A.N. Jha, Member, Fifteenth Finance Commission as well as Secretary, Ministry of Home Affairs, Secretary, Ministry of Defence and Secretary (Expenditure), Ministry of Finance as members.

Way forward

Robust legal framework: There wasn’t a need for a new legal framework as the FRBM already gives a robust legal framework.

  • The States need to align their own FRBM with the new FRBM enacted by the Union Government with the amendments to the earlier one in 2018. 
  • Also, there should be strict compliance on the issues of off-budget borrowing, contingent liabilities.
  • The principal terms of reference (ToR) of the finance committee will enhance the ability of the Finance Commission to address its ToR relating to giving a consolidated fiscal debt road map for the general government.

Need for coordination between FS and GST Council: the future of revenue policy is basically tied to GST. A more systematic dialogue between the Finance Commission and the GST Council is needed.

  • The Finance Commission is a Constitutionally mandated body that is at the centre of fiscal federalism. Set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States.
  • The Finance Commission has to be reconstituted every five years. The Constitution doesn't talk about whether it should be continuous or not continuous.
  • It is a quasi-judicial body. This is different from the GST Council (a constitutional body) which is primarily a political body.  Its membership comprises of Finance Minister of all states headed by the Union Finance Minister.
  • As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, et

Also readThe Fifteenth Finance Commission And GST Issues

Economic Advisory Council of the Fifteenth Finance Commission