Finance panel report suggests new path for fiscal prudence

The Thirteenth Finance Commission has suggested the path of fiscal consolidation and sharing of tax revenues between the Centre and the states, in its report submitted to President Pratibha Patil today.

The report has assessed the impact of the proposed goods and services tax (GST) on trade. It has also 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.

The report of the Thirteenth Finance Commission, headed by former finance secretary Vijay Kelkar, will be given by the President to the finance ministry, which will take it up with the Cabinet.

The recommendations of the report, which covers the period between 2010 and 2015, will be reflected in the Budget for 2010-11, Finance Minister Pranab Mukherjee said today on the sidelines of a function. “The report will be tabled in Parliament as per the system,” Mukherjee told reporters.

Currently, states and the Union Territories (UTs) get Rs 1.64 lakh crore a year, or around 30 per cent of the shareable taxes collected by the Centre. The total tax revenue of the government, which include shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The Twelfth Finance Commission had recommended that 30.5 per cent of the shareable central taxes should be shared among the states and the UTs.

The recommendations of Thirteenth Finance Commission assumes importance since the government has declared its intention to return to the path of fiscal prudence and an increase in devolution of revenue to the states could hit the Union government kitty further.

Earlier in the day, Kelkar and other members of the commission, including B K Chaturvedi, Indira Rajaraman, Atul Sarma and Sanjiv Misra, met the President and briefed her on the recommendations of the report. “We had been asked to suggest new path for fiscal consolidation...We have recommended the fiscal path for the next five years,” Kelkar told reporters.

The Commission, set up in November 2007, was asked to make recommendations on tax-related issues and look into a new Fiscal Responsibility and Budget Management roadmap.

The report was submitted a day before the extended tenure of the Finance Commission came to an end. Earlier, the report was to be submitted by October 31, 2009, but the Commission sought a three-month extension to submit it by December 31, 2009.