The President of India, under Article 280 of the Constitution, has just appointed the 15th Finance Commission. Its task is to assess the tax resources of the nation and suggest a formula for sharing them among the Union and the states, and also the share of each state.
The commission will review the current status of the finances, deficit, debt levels, cash balances and fiscal discipline efforts of the Union and the states. It will also recommend a fiscal consolidation roadmap. The commission also suggests the principles that should govern the grants in aid of the revenues of the states out of the Consolidated Fund of India. This Commission has also been asked to recommend measures that will incentivise states to improve the ease of doing business, avoid 'populist' measures, and so on.
The 14th Finance Commission was set up on January 2, 2013. Its recommendations cover the period from April 1, 2015 to March 31, 2020. Its report began a major restructuring of the fiscal architecture by increasing the untied funds available to states, thus contributing to a deepening of federalism. The report of the 15th Finance Commission will cover the five year period from April 1, 2020.
Composition of the commission
Former Planning Commission member N K Singh, a retired 1964-batch IAS officer, has been appointed Chairman of 15FC which, among other things, has been asked to look into the impact of GST on finances of both the Centre and states. Singh, apart from a highly distinguished career in the bureaucracy, has represented Bihar in the Rajya Sabha.
The other members of the commission, which is required to submit its report by October 2019, are Shaktikanta Das, Ashok Lahiri, Ramesh Chand and Anoop Singh.
Shaktikanta Das, a former secretary in the finance ministry, became a familiar face on TV channels when demonetisation was announced last November. Many were surprised that it was he, and not the RBI Governor, who was speaking on the subject. Having held key finance
positions, he is familiar with the issues that must be dealt with by 15FC.
Ashok Lahiri is a former chief economic adviser to the Government of India and has been director of the National Institute of Public Finance and Policy. He has also worked in the International Monetary Fund and the Asian Development Bank.
Ramesh Chand is a well-known agricultural economist and currently a member of the Niti Aayog. He will be a part-time member of 15FC. Anoop Singh, who has years of distinguished service in the IMF, is an adjunct professor at Georgetown University in Washington DC, and he, too, will be a part-time member of 15FC.
A 1951 Act determines the qualifications requisite for appointment as members of the Finance Commission and the manner in which they are to be selected, and prescribes their powers.
Article 3 of the Act states: The Chairman of the Commission shall be selected from among persons who have had experience in public affairs, and the four other members shall be selected from among persons who - (a) are, or have been, or are qualified to be appointed as judges of a High Court; or (b) have special knowledge of the finances and accounts of government; or (c) have had wide experience in financial matters and in administration; or (d) have special knowledge of economies.
Having been a Member of the Rajya Sabha, N K Singh has experience of public affairs. The chairmen of the 11, 12, 13, and
14 FCs were Dr A M Khusro, Dr C Rangarajan, Dr Vijay Kelkar, and Dr Y V Reddy, all distinguished economists with a long record of government service. But they would not have been considered as having "experience in public affairs" as a political person would be. It seemed to have become a custom
to entrust the task to an eminent economist. One wonders about its wisdom.
Legal acumen crucial
The Finance Commission performs a delicate act of balancing requirements of a range of governments in our federal system. As an intergovernmental mechanism, it is crucial in our Constitution. Experience in public affairs is critical. It is, therefore, essential that its members be perceived to have legal acumen in addition to specialisation in economics. Judges have the advantage of being perceived as impartial. Politicians are experienced in building a consensus. This FC does not have this advantage.
Another notable feature of the membership of 15FC is that two of its distinguished members - Ashok Lahiri and Anoop Singh - have worked in the IMF. The IMF is well known for its espousal of the Washington Consensus, which makes a fetish of controlling budget deficits. And it has recently admitted that it has been wrong.
Yet, through the terms of reference like studying debt levels, rewarding measures to ease of doing business, and discouraging 'populist' measures, the President has given the 15FC a clear neoliberal mandate. While this has been the government's economic guiding light for the last quarter of a century, its effects, like joblessness and increasing inequality, are causing concern. These concerns have been ignored.
At a time when the Indian economy is coping with the aftermath of demonetisation, and when a highly complex Goods and Services Tax has been introduced, and the informal economy has been badly hit, when unemployment has become a serious problem, the 15FC needs diverse inputs. It does not seem to have them within this membership. There are in India many other points of view that can benefit the 15FC. This Commission can now only get the benefit of such views from the outside. This is unfortunate indeed.