Fifteenth Finance Commission Advisory Council Opines Governments Will Have Substantial Expenditure Burden

The Fifteenth Finance Commission (XVFC) had virtual meetings with its Advisory Council on 25th and 26th June, 2020 and discussed various issues confronting the Commission now. The Members of the Advisory Council felt that since they had met the Commission in April, national lockdown was further extended till end of May and now restrictions are being lifted in phased manner resulting in gradual resumption of economic activities. However, the impact of the pandemic on the economy and on the fiscal positions of the Union and State Governments is still highly uncertain. Many analysts and think-tanks have reduced their GDP growth projections for 2020-21. Due to ongoing social distancing measures in place and local level restrictions in many places, supply chains are not yet fully restored, which affects recovery process.

The Advisory Council also discussed the adverse implications of constraints in the economy on tax revenue collections of the Union and State Governments. While noting that tax collections can be considerably affected by the pandemic, some Members of the Council indicated the impact of the pandemic on tax collections may also be asymmetric. Implications on the deficits and debt of the general government was discussed, along with constraints and possibilities for establishing a path for consolidation of public debt, post the pandemic. On the expenditure side, Governments will have substantial expenditure burden on account of health, support to poor and other economic agents.

The Members of the Advisory Council expressed that there is massive uncertainty going forward and appreciated the tall challenges for the Commission in designing fiscal transfers for the five-year period. The Commission along with the Advisory Council will be closely monitoring emerging indications on the economic and fiscal front as they become available, in order to make the best possible assessment

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