16th FC confronts fiscal prudence challenges

Breaking away from precedent, the government has issued bare minimum terms of reference (TOR) to the proposed 16th Finance Commission (16th FC), limiting it to what is broadly enshrined in the Constitution.

- INDIVJAL DHASMANA

WITH MINIMAL TERMS OF REFERENCE  

Nonetheless, the commission cannot avoid addressing issues of fiscal prudence and sustainability even if this ToR is retained, experts opine.

Some experts, who were part of previous commissions, also feel that the government may refrain from issuing additional ToR to avoid controversies and the awkward position of rejecting uncomfortable recommendations.

The Union Cabinet recently approved ToR for the 16th FC, according to which the body would make recommendations on the distribution between the Union and the states of the net proceeds of taxes, the principles governing grants-in-aid of the revenues of states, and the measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats and municipalities in the state.

Additionally, the ToR also included a review by the proposed commission of the present arrangements for financing disaster management initiatives. The recommendations on the financing of disaster management initiatives and local bodies have been part of successive finance commissions since the 6th and 11th commissions, respectively.

While there were expectations of a detailed list of references at the time of the constitution of the commission, Finance Secretary T V Somanathan recently clarified that there would be no further ToR beyond what was announced by the Cabinet. "These are shorter than those of recent commissions. This gives the commission greater leeway to take into account the different inputs that they get from stakeholders that appear before the commission," Somanathan had said.