Finance panel may be asked to suggest ways to deal with states' farm crises

Commission to help states in making recommendations towards fiscal prudence

The 15th Finance Commission (FFC) might be asked to suggest ways of providing more fiscal space and resources for states to deal with agricultural crises.

The terms of reference and composition of the commission are being decided and could be finalised by October.

Business Standard has learnt the FFC could be told to study the impact of drought and price crashes due to oversupply on farmers and agricultural income. And, suggest how states could deal with such issues without breaking their fiscal limits.

There have been large-scale protests by farmers across the country. Five states have announced farm loan waivers (Uttar Pradesh, Punjab, Karnataka, Telangana and Maharashtra), totalling around Rs 2 lakh crore. This has prompted concerns about their fiscal health, already stretched due to the issuance of bonds under the scheme to restructure power distribution companies, termed UDAY.

Finance Minister Arun Jaitley has maintained that the central government will not participate in any loan relief by states. And, that the latter are expected to pay banks and cooperatives from own allocations and revenues. The Centre will stick to its fiscal deficit target for the year of 3.2 per cent of gross domestic product, he has said.

An official said the FFC's stated terms might not explicitly stem from the current agri issues but look for suggestions for the coming years. The FFC's recommendations will be for the years 2020-2025.

Among the issues it could be told to study would be if states should be given a fiscal expansion on the lines of the one given for UDAY bonds. The states' combined deficit limits as laid down by the existing Fiscal Responsibility and Budget Management rules was increased to 3.25 per cent of gross domestic product, from 3 per cent.

As reported by Business Standard earlier, former parliamentarian, revenue and expenditure secretary N K Singh is being considered for the position of chairman of the FFC.

The Commission is set up every five years, to suggest how to distribute tax proceeds among Centre, states and local bodies. The 14th Commission was headed by former Reserve Bank of India governor YV Reddy. It had recommended the devolution of an unprecedented 42 per cent of the divisible pool to states during 2015-16 to 2019-20, against 32 per cent suggested by the previous Commission.