CENTRE STATE ECONOMIC RELATIONSHIP………

FINANCE COMMISSION OF

INDIA

INTODUCTIONThe Finance Commission India was officially structured and implemented as per the provisions of the Acts and Rules in the year 1951.

The President of India selects the commissioner and the four other members of the Finance Commission India.

Further, the President of India assigns the term of their office and their responsibilities.

The commissioner and the four members of the Finance Commission India are answerable for their act of commission and omission, directly to the President of India.

The process of selection of Finance Commission India

• The President of India shall, within maximum of two years from the commencement of the draft and thereafter completion of every fifth year or at earlier time , by order should constitute a Finance Commission

• The Finance Commission shall consist of a chairman and four other members, appointed by the President himself

• The elected parliament may by formulating appropriate law determine the qualifications of such members of the Finance Commission and it may also determine the manner in which the members shall be selected

The Qualification of the commissioner and other

members • The Chairman shall be a person with

experience in public affairs, and the four other members shall be selected from among persons who--

• Have been, or are qualified to be appointed as Judges of a High Court or

• Have special knowledge of the finances and accounts of Government or

• Have wide experience in financial matters and in administration or

• Have special knowledge of economics

Disqualifications of a member of the Commission • Unsound mind

• Undischarged debts• Convicted of an offense involving

moral turpitude• Financial or other interest as is

likely to be prejudicial to his functions

The duties of the Finance Commission India

•Distribution of the income of the government as per proportion or according to the contribution made towards such collection of revenues by each such state governments or central government•Define the grounds on which the government should allocate the grants-in-aid of the revenues of the Indian states out of the consolidated fund of India. The quantum of allocation of such funds needs to compliment the requirements of the Municipalities in the State and the resources of the Finance Commission of the State.•Any other matter referred to the Commission by the President in the interests of sound finance•The Finance Commission of India shall also determine the operational process and is vested with such powers in the operation as per the provisions enacted by the parliament of India

Term of office of members and eligibility for reappointment

The President shall specify the term period of holding offices to each member. The member shall be eligible for reappointment, until he may, by letter addressed to the President, resign from his office.

Service and salaries

The members shall discharge whole-time or part-time service as the President may fix, and they hall be paid such fees or salaries and such allowances as the Central Government may, by rules determine.

Finance Commissions

AppointedFinance Commission

Year of Establishment Chairman Operational Duration

First 1951 K.C Neogy 1952-57Second 1956 K.Santhanam 1957-62

Third 1960 A.K. Chanda 1962-66Fourth 1964 P.V. Rajamannarr 1966-69

Fifth 1968 Mahaveer Tyagi 1969-74

Sixth 1972 K. Brahmananda Reddy 1974-79

Seventh 1977 J.M. Shellet 1979-84Eighth 1983 Y.B. Chavan 1984-89

Ninth 1987 N.K.P.Salve 1989-95Tenth 1992 K.C Pant 1995-2000

Eleventh 1998 A.M.Khusro 2000-2005

Twelfth 2003 C.Rangarajan 2005-2010Thirteenth 2007 Vijay l kelkar 2010-2015

14TH FINANCE COMMISSION 2015 -2020

14th FC will look of following subjects, referred by President:Pricing of public utilities (electricity, water)

in independent manner?Review fiscal deficit and subsidies of both

Union and states. How to reduce them?DisinvestmentGST- how to implement?Telangana Andhra Pradesh- resource

distributionfunds for disaster Management, Climate

change, sustainable Development

RECOMMENDATIONS……….1)The 14th Finance Commission is of the

view that tax devolution should be the primary route for transfer of resources to the States

)In recommending an horizontal distribution, it has used broad parameters – population (1971), changes in population since then, income distance, forest cover and area, among others.

5)It has recommended distribution of grants to States for local bodies using 2011 population data with weight of 90 per cent and area with weight of 10 per cent

6)Grants to States are divided into two

7)One, grant to duly constituted gram panchayats

It has divided grants into two parts10) A basic grant, and a performance one for gram

panchayats and municipal bodies11)The ration of basic to performance grant is 90:10

for panchayats; and 80:20 for municipalities12)The total grant recommended is Rs. 2,87,436

crore for a five-year period. Out of which, the grant to panchayats is Rs.2,00,292 crore. And, the reminder goes to municipalities

13)The Commission has significantly departed from previous commission vis-à-vis recommendation of the principles governing grants-in-aid to the States by the Centre

14)It has chosen to take the entire revenue expenditure for this purpose. Hence, it has decided to take into account a state’s entire revenue expenditure needs without making a distinction between plan and non-plan expenditure

15)The Commission is of the view that sharing pattern in respect to various Centrally-sponsored schemes need to change. It wants the States to share a greater fiscal responsibility for the implementation of such schemes.

TUSSLE…….DEMANDS TO FC…MOST STATES WANT…………..50% from central taxes e.g. Madhya

Pradesh, TelanganaUnion should also share cash earned in

telecom spectrum auction, cess and surcharges.

Erstwhile- United Andhra39% (and not 50%) Because at that time,

Congress Government @both union and state.

Hence they did not want to create more burden on union. That way, union would left with more money to launch schemes

TELANGANA ……..50 % from central taxes.Finance commission is deciding allotment

based on 1971 census data. We want’em to use Census 2011 data

POINT TO REMEMBER………Note: 50% doesn’t mean Telangana

individually wants 50% of the whole Union taxes. They’re demanding 50% vertical distribution.

CONCEPT CHECK…….Vertical distributionOut of Central taxes, TOTAL 50% money be

allotted to all states.But FC will decideHorizontal distributionFrom those 50%, which state will get how

much money?Finance commission will decide that as

well.

Why do states want 50% share

32% share not enough to meet non-plan expenditure of the states. Example

staff salary and pension to teachers, doctors, police

Public roads and buildings maintenanceIrrigation and flood control etc.

Adding insult to the injury, Union wants the States to bring down Effective revenue deficit to 0% under the FRBM act.

Therefore, most states are forced to reduce statePSC recruitment. Many jobs are outsourced, staff hired on non-permanent basis  or ‘fixed salaries’, leading to more court litigations and protests. (e.g. teachers recruitment in Gujarat, Kashmir, Bihar, everywhere.)

During high GDP growth years, union’s tax collection increased, yet they’re not giving out more money in non-plan grants.

Over the years, centrally sponsored schemes (CSS) have increased. And percentage wise, states are required to share more and more burden e.g. Sarva shiksha Abhiyan, states share increased from 15% to 40%

Under 7th Schedule, States are given subjects which don’t fetch truckload of revenue. (compared to Union subjects such as IT, Customs, Excise)

Some reforms in Central schemesAll the money will be directly given to

states (and not to  DRDA and NGOs)States some flexibility in implementing CSS

according to their needs.

MORE CONCERNS………

In any country, the people have a right to advocate and push for a particular foreign and security policy. Given our linguistic, ethnic, religious and ideological divisions, these views often come across as those belonging to this or that section.

That, too, is legitimate. But at the end of the day, this diverse country must have a single policy and its execution must be the responsibility of its federal 

The government structure as such does not cater to these sectional interests; in other words, there are no constitutional or institutional mechanisms to relay those interests.

So, with Union governments taking the form of coalitions, they have become vulnerable to party or sectional pressure which often takes the form of pure blackmail.

FEW EPISODE FROM UPA  The DMK wanted the UPA government to

pilot a resolution in the United Nations demanding an international probe into alleged war crimes tantamount to “genocide” in Sri Lanka.

Then with Tamil Nadu Chief Minister J. Jayalalithaa joining the fray, the demands escalated — a boycott of the Commonwealth Heads of Government summit to be held later this year in Colombo, a ban on Sri Lankan players in the Indian Premier League matches in Tamil Nadu and an Assembly resolution asking the Union government to get the U.N. to create a separate Eelam in Sri Lanka.

The DMK and the All-India Anna Dravida Munnetra Kazhagam are only a more extreme manifestation of a trend we have been witnessing recently in India where coalition constituents and States are bringing foreign and security issues to the bargaining table.

Actually, the leader of this pack has been the Indian Left for which the United States is a permanent anathema. This is what led to the crisis in UPA-I in 2008 when the Left pulled out of the coalition because it opposed the India-U.S. civil nuclear deal.

This move of the Left was also pitched as much on its belief that nothing good could come out of an agreement with “imperialist” America, as its attempt to cloak the decision in the garb of attacking America for its anti-Muslim policies

The next instance of this “State-first” approach occurred when West Bengal Chief Minister and then UPA coalition partner, Mamata Banerjee, opposed the river waters agreement with Bangladesh. In September 2011, on the eve of Prime Minister Manmohan Singh’s visit to Dhaka, the Union government was forced to call off the signing of a pact that would have ratified a formula for sharing the waters of the Teesta with Bangladesh.

The surprise entrant into this club was Narendra Modi who suddenly jumped into the Sir Creek issue on the eve of the Gujarat elections.

In a letter to the Prime Minister, Mr. Modi said that not only should India not hand over the Creek to Pakistan, it should stop any dialogue with Islamabad on the issue. Any concession by New Delhi would affect Gujarat negativel

WHAT’S MORE???Barring Haryana, Madhya Pradesh,

Jharkhand and Chhattisgarh, all Indian States share borders with other countries, or with the international waters of the sea. In that sense, they have interests or issues that may intersect with the foreign and security policies of the country

In recent times, we have seen how the politics of Kerala has impinged on a foreign affairs issue relating to two Italian marines.

There is Jammu and Kashmir which still complains about the short shrift it got on the matter of river waters when the Union government signed the Indus Waters treaty with Pakistan.

As for waters, the Chief Ministers of Bihar and Assam too have important issues which impinge on our relations with Nepal and China.

Among the various governmental systems, the U.S. is one in which the interests of its federal constituents are taken into account in the formulation and exercise of foreign and security policies.

This was part of the large and small States compromise that resulted in its constitution. This enables its upper chamber, the Senate, to be the lead house on foreign policy issues — ratifying international agreements, approving appointments of envoys and so on.

The Senate, as is well known, has a membership which is not based on population — each State, large and small, populous and otherwise, has the same number of Senators.

It would be difficult to graft something like the U.S. system on to the Indian system. Yet, clearly the time has come when Mizoram and Nagaland also have a say in India’s Myanmar policy, instead of merely having to bear its consequences.

CONCLUDING POINTS OF AREAS OF CONFLICT……….In all four instances, it is possible to argue

for a “Union of India” stand rather than that of the State or party in question. In Sri Lanka, the Government of India has had to balance its policies to ensure that Colombo does not drift towards Beijing and Islamabad.

As for the Teesta issue, there were expectations that in exchange for the river waters treaty, Bangladesh would sign an agreement giving India transit rights to its land-locked north-east. Clearly, while West Bengal may have notionally given up something, there was the advantage of the greater good that would accrue, not only for the north-eastern states but West Bengal as well, through the increased commerce that would have resulted from a transit agreement.

In the case of the nuclear deal, too, the net gainer was India. It was the U.S. which had to abandon its sanctions regime against us and agree to allow civil nuclear commerce to resume with India. Given the balance of power in the international system, it was a deal only the U.S. could pilot — not France, China or Russia — though all of them had to finally put their stamp on it through the Nuclear Suppliers Group.

In Gujarat, the boundary between India and Pakistan on Sir Creek remains disputed and, as a result, the maritime boundary between the two countries has yet to be finalised. In this sense, India and Pakistan are both losers, not only because no one will invest in exploiting the natural resources from a disputed area, but also because they will lose out on the extended exclusive economic zone they can get under the U.N. convention on the laws of the seas