Road map for fiscal adjustment revisited

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: Within months after constitution of the 13th Finance Commission, finance minister P Chidambaram on Friday urged it to “revisit the roadmap for fiscal adjustment” after the 6th Pay Commission report was finalised. This will essentially link the functioning of the Finance Commission and the Pay Commission, and will encourage synergy between the two institutions. The 13th Finance Commission will give specific recommendations on the sharing of tax receipts between the Centre and states.

The Sixth Pay Commission report, which is expected by March 31, is likely to impact state finances.

The role of the Finance Commission is not only to provide recommendations on the sharing of taxes between the Centre and states, it also outlines the principles for providing grants-in-aid to states out of the Consolidated Fund of India.

“Historically both the Finance Commission and Pay Commission worked separately. This move to align the work would certainly help create cadres for local bodies, which had been recommended by 11th and 12th Finance Commissions,” says Rajesh Tandon, president, Society for Participatory Research in Asia (PRIA).

The 13 th Finance Commission was constituted on November 14, 2007 under the chairmanship of former finance secretary Vijay L Kelkar.

The commission will review the finances of the Centre and states and recommend steps for maintaining a stable and sustainable fiscal environment consistent with the government’s motto of achieving “equitable growth”.

The commission is expected to make available its report by October 31, 2009. After the finance minister’s announcement, the report may get delayed as it needs to wait for the Sixth Pay Commission report and its impact on state finances.

The commission’s recommendations will cover the period from April 1, 2010 to March 31, 2015. It will take stock of the existing arrangements for financing disaster management with reference to the National Calamity Contingency Fund, the Calamity Relief Fund and funds envisaged in the Disaster Management Act, 2005.

The commission will also take into consideration the likely impact of the implementation of the Goods and Services Act with effect from April 1, 2010, including that on foreign trade.

It has also been asked to consider the need for improving the quality of public expenditure to obtain better outputs and outcomes.

The need to manage ecology, environment and climate change consistent with sustainable development, which is an issue of national concern, will also be taken up by the commission.