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13th finance panel must chart a new course: study

KOCHI: A study by Kochi-based Centre for Socio-economic and Environmental Studies (CSES) has strongly argued that the 13th Finance Commission (FC) must steer clear of the past approach of the finance commissions in tying up statutory transfers to specific purposes and schemes. In their debt relief recommendations also, both the eleventh Finance Commission and the Twelfth Finance Commission had violated the spirit of the Constitution by making debt relief conditional and linking it to fiscal reforms as conceived by the Centre, the study noted.

“Leaving too much funds by the FCs with the Central government beyond meeting its expenditure responsibilities in its own subjects and to a limited extent in the Concurrent List can lead to proliferation of Central Plan and Centrally Sponsored Schemes (CSS) as is happening today. This enables the Centre to make inroads into the State and Concurrent subjects through the fiscal backdoor. The number and variety of CSS in the State and Concurrent subjects are increasing. The total outlay of all these varieties of CSS today far exceeds the Normal Central Assistance (NCA) to states to finance State Plans by four times,” the study says.

In addition to CSS routed through the State governments and other State bodies, the Central government, which is flush with funds, is entering the State and the Concurrent subjects through its own institutions. There are numerous proposals on the anvil to start heavily funded educational institutions in the Central sector while the State institutions are getting debilitated due to paucity of funds with the State government. A classic case is the proposal of the Central government for starting sixteen Central Universities, fourteen “world class” universities, eight IITs and five IISERs. Funds through the Finance Commission are intended to be transferred to the States unconditionally for the use by the States according to their own priorities.

Funds from the FC are to be received automatically and should be free from interference from the Central government. These intentions of the Constitution makers are gradually being negated by the recent Finance Commissions by making their transfers more and more conditional, linking those even to state-specific purposes and binding them to particular schemes.

The increasing of conditionality of statutory transfers (Transfers through FCs) is becoming evident in the way the grants were provided by the Twelfth Finance Commission. TFC had raised the share of grants in total transfers to 19 per cent from 13.5 per cent under the Eleventh Finance Commission and nine per cent under the award of the Tenth Finance Commission. Of the grants, the normatively determined unconditional deficit grants formed only forty per cent. More than a quarter of the grants were made for meeting specific purposes, most of them conditional and some of them very discretionary. Grants are being extended for meeting specific purposes like health, education, maintenance of roads and bridges, maintenance of public buildings, maintenance of forests and heritage conservation. In all these areas, there are a number of Centrally Sponsored Schemes already.

The study titled ‘Regaining the Constitutional identity of the Finance Commission ‘ by Dr. K.K. George and K.K. Krishnakumar of CSES here says that by making grants purpose-specific, the Finance Commissions impose their own priorities on the States. Besides, many ‘one size fits all’ type schemes applicable to all parts of the country do not take the local specifics of the State into account.

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