Cabinet note on 14th Finance Commision in 2 weeks
Y V Reddy is the front-runner for chairman position
The Finance Ministry will seek Cabinet approval within the next two weeks to set up the 14th Finance Commission for laying the fiscal consolidation roadmap for the next five years. While former RBI Governor Y V Reddy is considered the front-runner for the post of Commission's Chairman, finance minister’s former advisor Parthasarthi Shome and former finance secretary Sushama Nath are likely to be appointed its members.
“The terms of reference of the 14h Finance Commission will be sent to the Cabinet in a fortnight. It may be asked to suggest the fiscal consolidation roadmap, sustainability of states' debt, devolution of revenues to states,” a finance ministry official told Business Standard.
The Finance Commission may also look at the issue of giving moratorium to debt-ridden states. West Bengal has been asking for a moratorium on its interest and repayments of about Rs 22,000 crore for the next three years. The Centre’s dilemma is that the 13th Finance Commission had identified West Bengal, Kerala and Punjab as revenue deficit states in 2007 and a moratorium to one state would mean extending the same benefit to the other three states too.
The Commission may also look at the impact of the proposed Goods & Services Tax (GST). Though the 13th Finance Commission had also looked at the issue with April 2010 deadline in mind, a delay in the new indirect tax regime might call for a fresh look by the Commission, especially in the light of issues raised by the states with regard to Central Sales Tax compensation as well as loss of flexibility in GST.
An officer on special duty (OSD) to the Commission has been appointed to finalise the terms of reference and decide on a place for the Commission’s Secretariat along with other administrative issues. Once the Cabinet nod is received on the terms of reference, the Prime Minister’s Office may approve the names of the people who would form part of the Commission, said the official.
The Commission will have about two years to give its report which will be valid for the period 2015-2019. The recommendations, to be submitted around October 2014, will form part of Budget 2015-16.
Over the years there has been considerable expansion in the role of the Commissions from mainly being an arbitrator between the Centre and the states to being an architect of fiscal restructuring.
The 13th Finance commission, headed by Vijay Kelkar, had suggested steps to deal with the growing off-budget expenditure, especially, oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure. It covered a period between 2010 and 2015. Its terms of reference also included the measures needed to augment the consolidated fund of a state to supplement the resources of the Panchayats and municipalities in the state on the basis of the recommendations made by the Finance Commission of the state.