Will Chidambaram stick to Pranab's choice?

Finance Minister P Chidambaram will soon have to decide whether to stick by his predecessor’s choice of former Reserve Bank governor Y V Reddy for chairmanship of the 14th Finance Commission, to be set up next month.

Reddy’s name was suggested by the finance ministry during Pranab Mukherjee’s tenure. Earlier, former economic affairs secretary R Gopalan’s name for one of the members of the Commission was doing the rounds but now officials say he might not be the part of the body, to recommend on sharing of funds between the Centre and the states for 2015-20.

Proposals for the chairman and members will then go to the Prime Minister’s Office for approval. An Officer on Special Duty (OSD) to the Commission is likely to be appointed shortly, and thereafter the terms of reference will be finalised. The finance ministry is likely to approach the Cabinet for its approval to the terms by this month-end.

“We are in the process of deciding the terms of reference. These will be announced after the appointment of an OSD this month. The government has considered a few names and the person will join shortly,” said a ministry official.

The Commission will have about two years to give its report. Some of the recommendations, to be given around October 2014, will form part of Budget 2015-16.

The Commission should, given the earlier practice, been in place by now. The delay could be attributed to the change of regime in the ministry. Mukherjee had initiated the process, but after he left in June, there was a pause. The process gathered momentum after Chidambaram took charge last month.

Over the years, there has been considerable expansion in the role of the Commission, 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 (for 2010-15), had assessed the impact of the proposed Goods and Services Tax on trade. That Commission had suggested steps to deal with the growing off-Budget spending, especially oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure.

Its terms of reference had included measures needed to augment the consolidated fund of states to supplement the resources of panchayats and municipalities on the basis of the recommendations made by the Finance Commissions of the states. It had suggested increase in the share of state governments from 30.5 per cent to 32 per cent of central taxes. Besides, it had recommended giving local governments an additional 2-2.5 per cent.

Delivering the India Policy Forum 2012 Lecture here, Reddy recently said he was a votary of more financial powers to the states. He rejected the notion that more resources to the states would take India back to feudal days.