In a first, the Finance Commission which recommends how much money states should get out of the taxes collected by the central government will define what a populist measure is and recommend incentives for states that do not resort to them.
The 15th Finance Commission, headed by N K Singh, has many firsts to do in the nearly six decade-old history of the constitutionally mandated body.
It has also been asked to propose measurable performance-based incentives for states that have made efforts to expand and deepen the tax net, slowed population growth, promoted ease of doing business and saved money by adopting Direct Benefit Transfer where government dole is paid via bank accounts of users, Singh said at a media roundtable.
Besides, the Commission has been asked to recommend incentives for states that have been able to control or eliminate incurring expenditure on populist measures.
"The Commission has been asked to look at monitorable performance criteria on things like the progress made on ease of doing business, demography management and whether or not a state is deliberately pursuing a populist policy," he said. "It is now for the Commission to decide what a populist policy is."
The previous 14th Finance Commission had recommended that states should get a record 42 per cent of the tax revenues collected by the Centre. Recommendations of all the previous Finance Commissions have been accepted by the government.
For the purpose of devolution of funds, the panel has been asked to take a census of 2011 as the basis for population data instead of 1971 census which was the basis of recommendations till the 13th Finance Commission, drawing some criticism from southern states.
The previous commission introduced that idea in a small way for the first time. It gave a weight of 10 per cent for Census 2011 data and resulted in hurting states like Tamil Nadu that had seen slower growth in population as compared to states like Bihar and Madhya Pradesh.
Singh reasoned that the terms of reference of the 15th Finance Commission provide for incentives to states that have seen controlled population growth and so it balances out the concerns.
The 15th Finance Commission has been asked to submit its report by the end of October 2019. Its recommendations would be valid for five year period beginning April 1, 2020.
Singh said the panel would hold wide-ranging consultations with all stakeholders and would tour all the states beginning with Arunachal Pradesh in April, followed by a trip to Jammu and Kashmir and Kerala. It intends to complete the consultations with the states within 2018.
Multilateral agencies like OECD, IMF, World Bank and EU would also make presentations.
This is the first Commission after the abolition of the Planning Commission as well as doing away of the distinction of plan and non-plan expenditure.
Also, it will be the first one after the rollout of the Goods and Services Tax (GST), which has subsumed 17 indirect taxes of centre and state including excise duty, service tax and VAT.
Officials in the Commission said the panel has no say in fixing the Terms of Reference and it is expected to adhere to the guideline given by the government.
"We have no say in fixing of terms of reference but we are expected to adhere to the ToRs," an official said.