Finance panel concludes consultations with states

The Thirteenth Finance Commission, scheduled to give its report to the president by October, has finished consultations with all 28 states and is now ready to hold meetings with the finance ministry on the sharing of revenue between Centre and states.

The TFC has started drafting portions of the report, which will set the basis of Centre-State financial relations fot the five years starting April 1, 2010.

Some new features of this report will include a chapter on the goods and services tax which the Centre plans to implement from April 1, 2010. “Though it is not very clear how the GST will roll out and what would be the revenue sharing between the Centre and states, the commission report will broadly deal with the subject,” said a senior official.

An important addition to the commission’s terms of reference is likely to be the sharing of expenditure on implementation of the right to education. Under the Bill that has been passed by the Rajya Sabha and is expected to be cleared by the Lok Sabha in the current session, a presidential reference to the commission is to be made for working out the programme’s financing. The Commission will need to work out the details before October, when a full report is expected, said an official.

A similar presidential order in August 2009 extended the scope of the terms of reference of the commission to inclusion of oil, food and fertiliser bonds into the fiscal accounting, and the impact of various other obligations of the central government on the deficit targets.

States have demanded that the 30.5 per cent devolution of central resources to them be increased to 50 per cent. Besides distribution between the Union and the states of the net proceeds of taxes to be divided between them, the commission will suggest the principles governing the grants-in-aid of the revenues of the states out of the Consolidated Fund of India and the sums to be paid to the states which are in need of assistance. The levels of taxation and non-tax revenues reached at the end of 2008-09 would form the basis of recommendations.

Among the items the report will comment are finances of panchayats and municipalities, the need to manage ecology, environment and climate change, consistent with sustainable development, the commercial viability of irrigation projects, power projects, departmental undertakings and public sector enterprises through various means, including levy of user charges and adoption of measures to promote efficiency.

It will also review the present arrangements on financing of disaster management with reference to the National Calamity Contingency Fund and the Calamity Relief Fund.