The upcoming 16th Finance Commission, which will be notified by the Union government, is expected to face significant challenges in managing intergovernmental fiscal relations, according to an opinion piece on Business Standard. Rathin Roy, the head of the Overseas Development Institute in London, highlights that political and institutional contestations make the commission’s business untenable. The commission’s task is to determine how resources are shared between the central government and the states. However, Roy notes that devolution of funds to states has decreased over time, with the Union finance ministry gaining discretionary powers over capital grants.
Roy also criticizes the previous 15th Finance Commission’s report, calling it an “embarrassment” due to its lack of understanding and attempt to restrict central spending on defense. Looking ahead, for the 16th Finance Commission, Roy points out the challenges posed by the central government’s high fiscal deficit, failed tax revenue increase efforts, and stagnant public sector capital expenditure. He emphasizes the need for prudent allocation of tax revenues among states and suggests a reevaluation of the Goods and Services Tax to improve its effectiveness. Ultimately, Roy urges the government to constitue the 16th Finance Commission in a sensitive manner.
In summary, the article highlights the forthcoming challenges facing the 16th Finance Commission in managing fiscal relations between the central government and the states. It emphasizes the decreasing devolution of funds to states and the increasing discretionary powers of the Union finance ministry. The article also criticizes the previous finance commission’s report and calls for a reevaluation of tax revenue allocation and the Goods and Services Tax. Overall, it stresses the importance of a sensitive and prudent approach in constituting the 16th Finance Commission.
