Cabinet approves extension to 15th Finance Commission for one year

The union cabinet on Wednesday extended to the term of the Fifteenth Finance Commission by a year, asking it to submit an interim report for fiscal year 2020-21 and a full report for fiscal years 2021-22 to 2025-26—a decision apparently taken to factor in Jammu and Kashmir’s new status.

“The extension of the term will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalize its recommendations for the period 2020-2026,” said a government press release.

The cabinet decision means the Commission will recommend its award to six fiscal years, instead of the usual five. Sources said the cabinet decision does not fall foul of the Constitution.

Article 280 of the Constitution states that the President shall constitute a Finance Commission at the expiration of every fifth year or at such earlier time as the President considers necessary.

Simply put, this means that while the Commission can give recommendations for six years through two reports (2020-21 to 2025-26), when the Sixteenth Finance Commission is set up, it will consider devolution for 2025-26 to 2029-30, and not from 2026-27, an official explained. This will essentially keep the award period of the 15th Finance Commission at five years, since these are just recommendations which the government accepts.

“The Constitution just mandates that every five years a Finance Commission has to be set up. Today’s cabinet decision is not in contravention of that,” said an official.

Sources told Business Standard the commission was given more time, considering the creation of new union territories of Jammu and Kashmir and Ladakh.

The commission has sought time from President Ram Nath Kovind to submit an interim report on Saturday. The interim report will enable Finance Minister Nirmala Sitharaman and her bureaucrats to prepare the 2020-21 Budget. This course of action has precedence in at least three previous Finance Commissions.

Union territories usually get their resources from the central government’s share of the divisible pool, but the Jammu and Kashmir Reorganization Act mandates the commission to treat the two union territories as a state. Ladakh, on the other hand, is expected to get funds out of the centre’s share, like any other union territory.