'Permissible limits on borrowings should be equally applicable to Centre, States'

The permissible limits on borrowings under the fiscal consolidation roadmap need to be equally applicable to the Centre and States in the context of overall macroeconomic framework, opined the leading economists in a meeting with the 15th Finance Commission, held here today.

Economists further opined that it would be realistic to use contemporary population data but weightage should be assigned to population and also rewards for population stabilisation policy.

"It could be appropriately determined by the commission. The commission needs to balance equity with efficiency," a notification from Ministry of Finance said.

The Fifteenth Finance Commission, however, continued its interaction with economists and domain experts.

The significant issues raised today included new context post abolition of Planning Commission which has altered the traditional system of resource allocation and consequently abolition of the distinction between Plan and Non-Plan funds.

Furthermore, issues of uncertainty pertaining to the Goods and Services Tax (GST) needed to be fully factored in.

Issues of rewards for past performance needed to be balanced with incentivising future performance, the Commission noted.

The inadequacy of data and its reliability constituted a significant handicap in realistic revenue projection and other key variables like employment as well as in determining measurable criteria.

Further, the taxation capacity of states and any formula on devolution needs to be formed by equity, justice and uniformity.

While the TOR were broad-ranging, the commission has significant latitude defining its own procedure of work under the Constitution.

There were several key challenges in making robust projections on GDP, pension liability, revenue realisation and availability of resources beyond devolution for grants-in-aid.

State finances were stressed inter alia due to the behavior of Power Sector and implication of Ujwal Discom Assurance Yojana (UDAY) bonds on interest liability of states.

The future of Centrally Sponsored Schemes remained problematic with changing pattern of funding and a holistic view needs to be taken.

The Chairman summing the discussion felt that continued engagement with domain experts over the coming months will help the commission in firming up the approach before reaching tentative conclusions both on the vertical and horizontal devolution of revenue.

Besides, an approach for local bodies and panchayats which were both realistic and would genuinely deliver the intended resources to the beneficiaries, was also discussed.

The Commission was chaired by N. K. Singh and other members were also present. Participants in today's interaction included Dr V Bhaskar, Prof. Bharat Ramaswami, Dr. Arvind Subramanian, Dr. Pronab Sen, and Dr. Abhijit Sen, among others.

Later, the Commission also held the first meeting with the Advisory Council to get inputs on various issues under the purview of the Commission.

These included political economy behind the Centrally Sponsored Schemes, future of CSS, methods required for long-term financing of schemes, stabilisation of GST.