'Why the 16th Finance Commission's Struggles Will Be Significant'

In a Business Standard opinion piece, Rathin Roy, who heads the Overseas Development Institute in London, has highlighted the role of political and institutional contestations on intergovernmental fiscal relations.

The Wire Staff

why the 16th finance commission s struggles will be significant

Photo: Jordi Sanchez/Flickr CC BY-SA 2.0 DEED

New Delhi: In an opinion piece on Business Standard, Rathin Roy, who heads the Overseas Development Institute in London, has highlighted that the 16th Finance Commission to be notified soon by the Union government will face significant challenges caused by political and institutional contestations of intergovernmental fiscal relations.

These, he writes, make business untenable.

In September, reports had said that the Union government is working to set up the 16th Finance Commission. This commission is tasked with fine-tuning how resources are shared between the Union government and the states. This finance commission's term, however, is till 2026.

Roy notes how the 14th Finance Commission report abolished grants and increased devolution of funds to states, which was then followed by the Union government to promote cooperative federalism. "Over time, this has reversed, " he noted, highlighting how the abolition of the Planning Commission has given the Union finance ministry supreme discretionary powers over capital grants.

While authoritarian, Roy notes that this government signifies a weak sort of authoritarianism, citing the transfer of government audit officials who pointed out problems with flagship welfare schemes.

The report of the 15th Finance Commission, Roy calls an "embarrassment." He wrote that it lacked understanding and tried to corner central spending on defence.

For the 16th Finance Commission, he notes, the states are higher as central fiscal deficit is at a record high, tax revenue increase efforts have failed and total public sector capital expenditure has not increased. Roy points to the ways in which the Union government has been depriving states of their rightful shares.

In his piece, Roy also calls for prudent allocation of tax revenues among states and a fresh look at the Goods and Services Tax to make it more workable.

Ultimately, Roy calls on the government to constitute the 16th Finance Commission "sensitively."

This article went live on October fourteenth, two thousand twenty three, at fifty minutes past five in the evening.

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