A permanent fiscal secretariat needed

November 3, 2020 5:00 AM

Covid-19 has compelled us to rethink allocation of financial and other resources to priority sectors

In fact, disposal from the buffer stock has contributed towards improving availability in subsequent time (lean) periods and moderating retail prices.In fact, disposal from the buffer stock has contributed towards improving availability in subsequent time (lean) periods and moderating retail prices.

By Venkat Hariharan Asha & Sachin Bansal
During Covid-19, ensuring essential food supplies especially for the economically vulnerable population has been a challenging task for the government. Apart from rice and wheat—which have been a regular part of supplies through the public distribution system (PDS)—1 kg pulses per month per household as identified under the National Food Security Act (NFSA) are being distributed free of cost from the government buffer maintained under the Price Stabilisation Fund (PSF) for eight months (April to November 2020) under the Pradhan Mantri Garib Kalyan Yojana to alleviate the hardships of the poor.

In addition, pulses needed for army/central paramilitary forces, Mid-Day Meal (MDM) scheme and Integrated Child Development Scheme in case of some states/UTs are also met from the buffer (which includes five major pulses—tur, urad, moong, chana and masoor). In fact, disposal from the buffer stock has contributed towards improving availability in subsequent time (lean) periods and moderating retail prices.

The procurement of pulses at the minimum support price (MSP) is undertaken in the Price Support Scheme (PSS). The rationale is to provide a guaranteed price and an assured market (i.e. procurement by government agencies) to protect growers from adverse price fluctuations. Currently, pulses procured under the PSS are transferred for building the buffer under the PSF.

The PSF and the PSS, inter alia, are central schemes. These are completely funded and implemented in states/UTs by the Centre. There are also centrally sponsored schemes (CSS) categorised into ‘core of the core schemes’ and ‘core’ schemes. The Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) is one of the latter. In contrast to central schemes, the funding for CSS is shared between the Centre and states in a predetermined ratio, with the Centre contributing a relatively greater share and implementation is by states/UTs.

States are also engaged in implementation of their own welfare schemes, as agriculture is a ‘State Subject’. This flows from the provision of Article 249 of the Constitution, which defines division of powers amongst the ‘Union List’, the ‘State list’ and the ‘Concurrent list’. However, as far as the division of revenues of governments is concerned, a centripetal bias is observed, i.e. a relatively larger (and significant) share of financial resources is at the behest of the Centre. The central schemes and CSS, inter alia, facilitate necessary resource flow to states/UTs, which helps towards bridging this gap for states/UTs to arrive at the desired outcomes.

Also, the Finance Commission (FC) set up under Article 280 of the Constitution has a vital role to play in the devolution of financial resources from the Centre to states. It is entrusted with evaluation of the state of finances of the Union and state governments, recommend the sharing of taxes between them, and lay down the principles determining the distribution of these taxes amongst states. The FC grants devolving to states are crucial in boosting the finances of states as their own revenue handles are relatively limited.

Considering the extant case of agriculture, interventions by the government are at multilevel (Centre/states). They are funded from different avenues: completely by the Centre (central schemes like PSF/PSS, and others); shared in CSS (PMKSY); or funded by state governments themselves from their own revenues/borrowings/various fund flows from the Centre. In the case of the former two, funds received are for predetermined purpose/priorities. In the case of the latter, states have greater flexibility with respect to allocation across sectors and design of implementation.

Broadly, interventions are related to inputs (irrigation, fertiliser, soil health card scheme, seeds) or output (price support, income support viz. PM-KISAN of the Centre, KALIA of Odisha and Rythu Bandhu of Telangana, or insurance, like Pradhan Mantri Fasal Bima Yojana).

Given the complex and diverse nature of plethora of interventions (and associated fund flows from various avenues) as outlined above, there is a need to evaluate these in a holistic and integrated manner at the level of states (both individually and collectively) as well as the Centre (state-wise and as a whole). This is imperative in understanding the nature of fiscal flows to the agricultural sector in a quantitative manner (level and trend of quantum of fund flows and outputs achieved) as well as in qualitative terms (outcomes achieved). A framework to oversee and analyse all these patterns in a systematic and cohesive manner is needed.

Towards this, we reiterate the recommendation of the 14th FC of setting up a permanent secretariat of the FC as an autonomous institution as far as the fiscal side (government revenues and expenditure) is concerned, as a counterpart to the Reserve Bank of India (RBI), which enjoys the required autonomy to cater to monetary policy of the nation.

This would, indeed, have a widened mandate and serve three fundamental and crucial functions: one, being a repository of interventions sector-wise by the Centre and states and vice versa; two, enable technical and independent evaluation of various fund flows as outlined above and outcomes achieved thereof; three, to make necessary insights and policy recommendations to fine tune allocations, i.e. facilitate reallocation of resources to interventions with greater marginal productivity. Capital and revenue expenditure could also be guided needs in the best interests of our dear agricultural sector (to begin with)!

This may later be extended to other sectors, too, initially social sectors, including health and education. Fiscal expenditure has a crucial role to play in addressing macroeconomic concerns (growth and employment). The Covid-19 pandemic has compelled us to rethink allocation of financial and other resources to priority sectors and initiate reforms.

This is essential for stabilising the economy and setting a trajectory for growth. Urbanisation and climate change are key factors in shaping jobs, outputs, migration trends and economic growth. Thus, not only micro (sector-specific) but their impact on macro (inflation, growth, employment) variables may be addressed objectively to facilitate allocation of scarce government resources in a prudent manner and achieve more efficient outcomes. The proposed organisation will take a comprehensive view of all these aspects, upholding the spirit of cooperative federalism.

 

Assistant director and junior statistical officer, respectively, Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Government of India. Views are personal

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