The Fifteenth Finance Commission (FC) is not obliged to accept nominal gross domestic product (GDP) forecasts given by the central government and will make its own judgement, FC Chairman N K Singh said on Friday. Singh said he would meet state finance ministers at the next Goods and Services Tax (GST) Council meeting on September 20 in Goa.
The topics for discussion will include whether the GST compensation period should be extended by three years to be co-terminus with the 15th FC award period, and whether the 14 per cent revenue growth, on the basis of which states are compensated, needs to be given a fresh look.
Singh was briefing the media after a meeting of the 15th FC with economists who make up its advisory council.
The council’s members who attended the meeting included Chief Economic Adviser Krishnamurthy Subramanian, D K Srivastava, M Govinda Rao, Indira Rajaraman, Sudipto Mundle, Omkar Goswami, Arvind Virmani, Surjit Bhalla, Prachi Mishra, and Neelkanth Mishra. “I cannot be oblivious to what economists told me today (Friday). The Commission is not obliged to accept the numbers on nominal GDP as submitted to the Commission either in the Centre’s memorandum or as contained in the medium-term fiscal policy statement presented to Parliament,” Singh said.
“The Commission is duty-bound under the Constitution to arrive at its own independent judgement. How we intend to exercise that is entirely up to us. But the fact remains from six months ago to now the numbers on nominal GDP look more problematic. The best-case scenario is that the first quarter is a just a blip and the subsequent quarters will work out to be somewhat better,” Singh said.
The medium-term fiscal policy statement, tabled as part of the Union Budget 2019-20, forecasts nominal GDP for 2019-20 to grow 11 per cent year-on-year. Nominal GDP for 2020-21 is projected to grow at 11.6 per cent, and for 2021-22 at 11.9 per cent.
In real terms, the growth rates for 2020-21 and 2021-22 work out to 7.3 and 7.5 per cent, according to the statement.
GDP grew at 5 per cent in April-June 2019, the slowest since 2013, on account of subdued economic activity in sectors, from services and manufacturing, to agriculture and construction. But more importantly, the economy grew at 8 per cent in nominal terms — because of low levels of inflation — the slowest since the third quarter of 2002-03.
When asked how the 15th FC would come up with its own estimates, Singh said no decision had been taken on that yet. “I cannot prejudge on that but I have to take all these into account, come to a conclusion, and project a number. Now there are several ways I can do it but I do not know what I am finally going to adopt,” Singh said, adding that meetings had been held with think tanks like the National Institute of Public Finance and Policy.
At the next GST Council meeting, Singh won’t be accompanied by other members of the 15th FC. Hence it won’t be an official meeting of the 15th FC and GST Council, though views will be shared on a number of issues, he said. “As it stands, the GST compensation period ends in 2021-22, two years into our award period. A number of states have asked whether it can be extended by three more years to 2024-25 to be co-terminus with the 15th FC award period. We will continue those discussions at the meeting,” said Singh.