Reddy's self-discipline would come in handy while tackling challenges

During his stint as governor of the Reserve Bank of India (RBI), it was alleged he was too conservative. However, through tough lending standards, to a large extent, Yaga Venugopal Reddy had insulated the Indian banking system from the effects of the sub-prime crisis that led to the global financial meltdown in 2008. Now, as he sets about steering the 14th Finance Commission, he would have to suggest ways to the Centre and the states to augment their resources at a time when the Union government is seeing tough times on the financial front.

Reddy is an early riser. Speaking to Business Standard two years earlier, he had said this had resulted from a rural upbringing. “When you live in a village, you wake up with the sun and go to bed once it sets,” he had said. It is this discipline that would keep the former bureaucrat (1964 batch of the Indian Administrative Service) in good stead in striking a balance between the conflicting needs of the Centre and the states.

The commission’s primary task is to suggest ways to distribute divisible central tax receipts between the central and state governments. His predecessor and chairman of the 13th Finance Commission, Vijay Kelkar, had recommended the share of states be increased from 30.5 per cent to 32 per cent from 2010-11. Reddy would be under pressure to raise the states’ kitty. According to an official statement, Reddy has been asked to go by the fiscal road map laid down by the 13th Finance Commission. In this respect, he would have to consider the Centre’s pressing requirement for public finance and the demand for more resources by states. It is here that Reddy’s deftness would come into play, given he has also been asked to suggest measures to augment overall resources.
 

FINANCE COMMISSIONS SO FAR
Finance  Commission	Year of Establishment	Chairman Operational	Duration
First	1951	K C Neogy	1952-57
Second	1956	K Santhanam	1957-62
Third	1960	A K Chanda	1962-66
Fourth	1964	P V Rajamannarr	1966-69
Fifth	1968	Mahaveer Tyagi	1969-74
Sixth	1972	K Brahmananda Reddy	1974-79
Seventh	1977	J M Shellet	1979-84
Eighth	1983	Y B Chavan	1984-89
Ninth	1987	N K P Salve	1989-95
Tenth	1992	K C Pant	1995-2000
Eleventh	1998	A M Khusro	2000-2005
Twelfth	2003	C Rangarajan	2005-2010
Thirteenth	2007	Vijay Kelkar	2010-2015
Fourteenth	2013	Y V Reddy	2015-2020

The 13th Finance Commission had suggested cutting the Centre’s fiscal deficit to three per cent in 2013-14 and retaining this level in 20014-15. A new target provided by Finance Minister P Chidambaram pegged the fiscal deficit for 2013-14 at 4.8 per cent and suggested cutting it to three per cent by 2016-17. So, Reddy would have to consider whether to start 2015-16 with Kelkar’s fiscal deficit target of three per cent for the previous financial year, or that provided by Chidambaram.

During 2003-2008, as RBI governor, Reddy had often come into conflict with the finance ministry. “Delhi did not want to kill the animal spirits of enterprise. We worried more about the stability of growth,” he had told this newspaper.

As head of the 14th Finance Commission, he may, once again, be at odds with the ministry, as the requirement of the Centre and states are different, particularly when it comes to sharing resources.