Need to strongly institutionalise state finance commissions, empower third tier of governance, says RBI governor Shaktikanta Das
RBI governor Shaktikanta Das on Friday said that there was a need to strongly institutionalise state finance commissions and empower the third tier of governance. Setting the tone for the 17th LK Jha Memorial Lecture titled ‘Fiscal Federalism: Ideology and Practice’ delivered by chairman of the Fifteenth Finance Commission NK Singh, the governor said that the issue of fiscal federalism was important in the aftermath of the introduction of GST and formation of the Niti Aayog. LK Jha, an Indian Civil Service officer, served as the governor of the RBI from July 1967 to May 1970. Competitive federalism, Das said, has become increasingly relevant through initiatives like ranking of states based on ease of doing business, and the Niti Aayog’s aspirational districts programme.
While delivering his lecture, Singh pointed to a number of key challenges to improving fiscal federalism. He touched upon the lament of the states that their fiscal autonomy was being restricted after the implementation of GST. Singh also said that there was discord between Article 282, which allows the Centre to give grants in state subject areas, and the Seventh Schedule that allocates powers and functions of the Union and the states into the state, Union and the concurrent lists.
Citing the examples of ‘entitlement-based legislations’ like MNREGS and the Right to Education Act, he questioned if these legislations infringe the borders between the Centre and the states. He said Article 282 was expected to be an overarching provision to be used sparingly, but has been misused by all centrally-sponsored schemes in the domain of the states. “Considering that states often protest that these schemes are ill-designed and not suited to their specific needs… no state has really decided to abandon them,” he said.
In order to overcome these challenges, Singh listed out some suggestions. He said that the symmetry between the GST Council and Finance Commission should be seriously considered for better revenue outcomes. He added that a relook into the Seventh Schedule and Article 282 and creation of policy to rationalise centrally sponsored schemes and central outlays are necessary to improve fiscal federalism.
Responding to a question from the audience regarding whether GST could be simplified, Singh said the purpose of GST would be defeated if it were not made simpler, and noted that there was a “cumbersomeness” in compliance. While there is a huge scope for improving revenue realisations, he said that the cost of compliance should be minimised, and said that there should be greater stability in rates.