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GS Paper: GS2-09.Appointment to various Constitutional posts; Constitutional Bodies(powers, functions and responsibilities); Statutory, Regulatory and Quasi-judicial bodies

  • Fifteenth Finance Commission has increased proportion of grants conditional on reforms

    The article highlights the crucial recommendations made by the 15th Finance Commission and also explains the importance of conditions for grants from the Centre to push the state for reforms.

    Crucial recommendations by 15th Finance Commission

    • The Fifteenth Finance Commission’s report for the period 2021-22 to 2025-26 outlines some crucial recommendations for state governments.
    • These recommendations cover tax devolution, grants from the Centre, and the guidelines for the borrowings that they are permitted to incur over the medium-term.
    • The commission has recommended that 41 per cent of the government’s divisible pool of taxes be transferred to state governments.

    Horizontal devolution formula

    • The horizontal devolution formula specifies each state’s share in the overall pie.
    • The 15th FC was required to use the states’ population as per the 2011 Census — a highly contentious change.
    • It has also introduced a demographic performance criterion.
    • Additionally, it has also introduced a new criterion –tax effort.
    • Tax effort is measured by the ratio of the three-year average of per-capita own tax revenues and per-capita gross state domestic product (GSDP).
    • The net result of the change in criteria is that the share of 10 states in the divisible pool has declined.
    • Karnataka is the biggest loser, while Maharashtra is the biggest gainer.

    Grants from the Centre conditioned on reforms in states

    • Another major set of the commission’s recommendations pertain to grants from the Centre.
    • In a major shift, the 15th FC has sharply increased the proportion of grants whose receipt is conditional on specified reforms being undertaken.
    • 57 per cent of the 15th FC-recommended grants accepted so far by the GoI are conditional, relative to just 17 per cent for the 14th FC (including J&K).

    What are the conditions

    1) Setting up of State Finance Commission (SFC) and applicability of SFC’s recommendations for 5 years only

    • Constitution requires state governments to set up State Finance Commissions (SFC).
    • The 15th FC has asserted that the mandate of any given SFC is intended to be applicable only for five years.
    • It revealed that only 15 states have set up their fifth or sixth SFCs, whereas several states have not moved beyond their second or third SFC.
    • Accordingly, a staggering 84 per cent of the Rs 4.4 trillion grants for local bodies recommended by the 15th FC are conditional on the states setting up SFCs for the coming five-year period, and acting on their recommendations by March 2024.

    2) Availability of online accounts

    • Another entry-level condition for availing grants by rural and urban local bodies pertains to the timely availability of their accounts online from 2021-22 onwards.

    3) Notiflying floor rate for property tax

    • For the receipt of grants by the urban bodies, states are required to notify a floor rate for property tax by 2021-22, and demonstrate consistent year-wise improvement from 2022-23 onwards.
    • This will complement the conditions set previously by SEBI for ULBs to become eligible to raise municipal bonds.

    Changes in limit on net borrowings of state governments

    • The commission has recommended that the normal limit for net borrowings of state governments be fixed at 4 per cent of GSDP in 2021-22.
    • This will ease to 3.5 per cent by 2022-23, thereafter reverting to the erstwhile 3 per cent limit till 2025-26.
    • The additional borrowing space of 0.5 per cent of GSDP for states is conditional on the completion of power sector reforms.

    Prospect of huge gaps in states’ revenue in the future

    • The states’ fiscal arithmetic will alter in 2022-23 with the GST compensation set to cease at the end of June 2022 as things stand today.
    • The ensuing drop in grants, combined with the tapering of the front-loaded revenue deficit grants is likely to leave a big gap in some states’ revenues.

    Consider the question “What are the conditions laid down by the 15th Finance Commission on the states for the central grants? How these conditions could benefit the states?”

    Conclusion

    The question is whether this revenue gaps will force the states to move on both the power sector reforms, which have proven challenging in the past, and the municipal reforms, so that their resource availability may be enhanced.

  • 15th Finance Commission could catalyse accountability, effective governance at grassroots

    The article explains the innovative approach adopted by the Fifteenth Finance Commission in devolution of funds.

    Steep hike in grants

    • Local governments are the closest to the people at the grassroots level. 
    • They provide critical civic amenities such as roads, water and sanitation, and primary education and health.
    • With this in view, the Fifteenth Finance Commission (FFC) has recommended grants of Rs 4,36,361 crore from the Union government to local governments for 2021-26.
    • This is an increase of 52 per cent over the corresponding grant of Rs 2,87,436 crore by its predecessor for 2015-20.

    Innovation in recommendations

    1) Scaling of capacities in municipalities

    • The Commission has recommended Rs 8,000 crore as performance-based grants for incubation of new cities and Rs 450 crore for shared municipal services.
    • This is designed to foster innovations in urban governance to transform our cities with speed and scale.
    • There is an urgent need for synergistically combined area-based development to spur economic growth and job creation, and decongesting through the development of satellite townships.
    • Separately, the massive scaling of capacities in municipalities, particularly the 4,000-odd smaller ones, cannot be done by building capacities in each one of them, but through institutional and technological innovations, without compromising their autonomy.
    • The shared municipal services model, with mobile internet, maps, platform thinking, and outsourced services all taken together, can help us fast-track the creation of municipal capacities at scale.
    • This is one of the innovations in the FFC recommendations.

    2) Allocation covers all three tiers of panchayats

    • Of grants for all local governments with 90 per cent weightage on population and 10 per cent on area remains unchanged from the Fourteenth Finance Commission.
    • For panchayats, the FFC allocations cover all the three tiers — village, block, and district — as well as the Excluded Areas in a state exempted from the purview of Part IX and Part IX-A of the Constitution.
    • Funds to all three can improve functional coordination and facilitate the creation of assets collectively across smaller jurisdictions.
    • This is the second new aspect of the FFC recommendations.

    3) Focus on metropolitan governance

    • The FFC calls for a focus on urban agglomerations (UAs) that include urban local bodies, census towns and outgrowths.
    • In 2011, out of the total urban population of 377 million, 61 per cent lived in UAs.
    • The FFC has emphasised the need to focus on the complex challenges of air quality, drinking water supply, sanitation, and solid waste management in the million-plus UAs and cities.
    • Thus, for 2021-26, there is a Million-plus Challenge Fund of Rs 38,196 crore that can be accessed by million-plus cities only through adequate improvements in their air quality and meeting service level benchmarks for drinking water supply, sanitation, and solid waste management.
    • This focus on metropolitan governance through substantive but 100 per cent outcome-based grants is the third innovation.
    • For ULBs other than the million-plus category, the total grants are Rs 82,859 crore.
    • The grants to local governments, both urban (less than a million category) and rural, contain a mix of basic, tied as well as performance grants.

    4) Entry-level conditions

    • The efficiency, smooth functioning and accountability of local bodies have been plagued by:
    • (i) lack of readily accessible and timely audited accounts,
    • (ii) absence of timely recommendations of State Finance Commissions and suitable actions thereon,
    • (iii) inadequate mobilisation of property tax revenues (especially in ULBs).
    • Finance Commissions in the past have drawn pointed attention to these issues, but with limited success.
    • These entry-level conditions for availing any grants and their applicability to all local governments is the fourth innovation.

    Consider the question “Examine the innovative approach adopted by the Fifteenth Finance Commission for the devolution of funds to panchayats and municipal bodies.”

    Conclusion

    Hopefully, over the next five years, through a partnership among the Union, states, and local governments, in the spirit of cooperative federalism, these recommendations and innovations will catalyse progress in the accountability and effectiveness of local governments in India.

     

  • In difficult times, Fifteenth Finance Commission rose to the challenge

    The article analyses the various recommendations of the Fifteenth Finance Commission and their impact.

    Unique challenges

    • Many new and unique demands were placed on the 15th Finance Commission.
    • The major challenge being addressing the issue of the 2011 population census evoking a sharp response from the southern states.
    • Other issues include the non-lapsable defence fund and the use of certain parameters for performance incentives.
    • The Commission was also required to perform the task of assessing and projecting the fiscal roadmap for the Union and state amid an uncertain domestic environment due to shortfall in the GST collection, further accentuated in the year 2020 by the global pandemic.

    Key recommendations

    The Commission, in its final report, recommended vertical devolution at 41 per cent, adjusting 1 per cent for the erstwhile state of Jammu and Kashmir.

    1) Horizontal distribution

    • For horizontal distribution, the commission has tried to harmonise the principles of expenditure needs, equity and performance.
    • This is achieved by the introduction of efficiency criteria of tax and fiscal efforts and by assigning 12.5 per cent weight to demographic performance.
    • Consideration of demographic performance will help in resolving the demographic debate and incentivising states in moving towards the replacement rate of population growth.

    2) Principles governing grant-in-aid

    • Grants are important as they are more directly targeted and equalise the standards of basic social services to some extent.
    • The Commission has recommended a total grant of Rs 10,33,062 crore during 2021-26.
    • Grant is broadly characterised into: (a) revenue deficit grants (b) grants for local governments (c) grants for disaster management (d) sector-specific grants and (e) state-specific grants.
    • Many of these grants are linked with performance-based criteria, thereby promoting principles of transparency, accountability, and leading to better monitoring of expenditures.
    • However, the Commission was asked to examine whether revenue deficit grants should be provided at all to the states.
    • Some states stressed that revenue deficit grants have serious disincentives for tax efforts and prudence in expenditure and, hence, these should be discontinued.
    • Fiscally stressed states of Kerala, West Bengal and Punjab are regular recipients of these grants due to high debt legacy.

    3) Conditional grants to local bodies

    • This Commission’s grant for local government is different from that of its predecessors for the set of entry-level conditions:
    • (a) Constitution of State Finance Commissions.
    • (b) Timely auditing and online availability of accounts for rural local bodies coupled with
    • (c) Notifying consistent growth rate for property tax revenue for urban local bodies.
    • Secondly, the recommendations are in alignment with the national programmes of Swachch Bharat Mission and Jal Jeewan Mission.

    4) Incubation of new cities and urban grants

    • It is for the first time that a Finance Commission has recommended Rs 8,000 crore to states for incubation of new cities, granting Rs 1,000 crore each for eight new cities.
    • The focus of urban grants for million-plus cities is improvement in air quality and meeting the service level benchmark of solid waste management and sanitation.

    5) Grants for health and setting up of disaster mitigation fund

    • The commission recommended channelising the health grant of Rs 70,051 crore through local bodies, addressing the gaps in primary health infrastructure.
    • The Commission’s recommendation for setting up the state and national level Disaster Risk Mitigation Fund (SDRMF), in line with the provisions of the Disaster Management Act, is both well-timed and necessary.
    • For the first time, the Finance Commission has introduced a 10-25 per cent graded cost-sharing basis by the states for the NDRF and NDMF which has not been appreciated by the states.

    6) Non-lapsable fund for defence

    • The Commission has recommended setting up of a dedicated non-lapsable fund, the Modernisation Fund for Defence and Internal Security (MFDIS).
    • Objective of the fund is to bridge the gap between projected budgetary requirements and budget allocation for defence and internal security and to provide greater predictability for enabling critical defence capital expenditure.
    • The fund will have four specific sources: (a) Transfers from the Consolidated Fund of India, (b) disinvestment proceeds of DPSEs, (c) proceeds from the monetisation of surplus defence land and (d) proceeds of receipts from defence land likely to be transferred to state governments and for public projects in the future.
    • The total indicative size of the proposed MFDIS over the period 2021-26 is Rs 2,38,354 crore.
    • The Union government has accepted this recommendation in principle.

    Consider the question “Examine the various principles on which the Fifteenth Finance Commission based the horizontal distribution of states share.”

    Conclusion

    The report starts with the famous quote of Mahatma Gandhi: “The future depends on what we do in the present”. It would be interesting to see the impact of these overarching and revolutionary recommendations in the times ahead.

  • Finance Commission dips into states’ share for Centre’s expenditure

    The article analyses the recommendations of fifteenth Finance Commission and their implications for the federalism in India.

    Major recommendations accepted by the government

    • Report of the fifteenth Finance Commission (XVFC) was laid before the Parliament.
    • The finance minister announced the acceptance of its recommendation of retaining the share of states in central taxes at 42 per cent.
    • She also stated that on its recommendation revenue deficit grants of Rs 1.18 lakh crore to the states have been provided for in the budget.
    • Some of the recommendations, however, have far-reaching implications on government finances, both of the Centre and the states.
    • Keeping in view the extant strategic requirements for national defence in a global context, XVFC has, in its approach, recalibrated the relative shares of the Union and the states in gross revenues receipts.

    Issues with the recalibration for national defence

    • Recalibration enables the Union to set aside resources for special funding on defence.
    • The states have been made to pay Rs 7,000 crore to bridge [the] Centre’s gap between projected budgetary requirements and budget allocation for defence and internal security defence.
    • But this is an expenditure that the Centre is obliged to fund.
    • For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation.
    • What has been done is not in line with the system envisaged in the Constitution.
    • This move will eventually put the fiscal federal system under systemic strain.
    • In operational terms, too, this move is a significant departure.
    • So far, the Centre has been used to pre-empting resources from the kitty to be distributed among the states but only to finance expenditures in areas earmarked for states.
    • This was done through the centrally-sponsored schemes, but at least the states’ money was being used in the states, even if on a discretionary rather than a criteria basis.
    • Now, with this move of earmarking and financing of funds for sectors, it is the states’ money that is being used to finance the Centre’s expenditure.
    • This is certainly not cooperative federalism.

    Changes in horizontal distribution: More weightage to efficiency and performance

    • In horizontal distribution, the criteria used by successive finance commissions for devolving taxes across states have always been linked to need — based on equity, tempered by efficiency.
    • From 92.5 per cent of funds to a state being devolved based on need and equity, the XVFC has reduced these two components to 75 per cent.
    • The remaining 25 per cent are to be devolved on considerations of efficiency and performance.
    • This is the lowest weightage for equity, making the XVFC transfers potentially the least progressive ever.

    Structural changes not taken into account

    • The Finance Commission has not even made any serious effort to review the existing scheme of transfers in light of the changed federal landscape.
    • The existing criteria for the devolution have evolved in, and for, a production-based tax system.
    • The XVFC should have reformulated the distributional criteria for a consumption-based tax system [GST].
    • The structural change from production to consumption will make a significant difference to distribution as well as the need, nature and distribution of equalising grants.
    • This is the same manner in which the revenue deficit grants have been carried forward.
    • Ideally, the “gap-filling” approach should have been redesigned in light of the compensation law providing a minimum-guaranteed revenue of 14 per cent to every state.

    Consider the question “For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation. What are the issues with this move?”

    Conclusion

    The Fifteenth Finance Commission report is not aligned with the new landscape of federalism and does not address the key issues.

  • Municipal finance reform through Finance Commission recommendations

    Transforming the financial governance of India’s municipalities

    • Interim report of the Fifteenth Finance Commission of India (XV FC) indicates that it could fundamentally transform the financial governance of India’s municipalities.
    • Final report for FY 2021-22 to FY 2025-26 is expected to be tabled along with the forthcoming Budget 2021-22.
    • Building on the track record of previous finance commissions, the XV FC Commission has significantly raised the bar on financial governance of India’s municipalities in the interim report in at least four specific ways.

    4 Provisions in the interim report

    1) Increase in the outlay for municipalities

    •  It has set aside Rs 29,000 crore for FY 2020-21 and indicated the intent to raise the share of municipalities in the total grants’ of local bodies including panchayats gradually over the medium term, from the existing 30 per cent to 40 per cent.
    • This could result in the outlay over five years being in the range of Rs 1,50,000-Rs 2,00,000 crore compared to Rs 87,000 crore during the XIV FC period.

    2) Ensuring financial accountability through conditions

    • Two very important entry conditions have been set for any municipality in India to receive FC grants:
    • 1) Publication of audited annual accounts.
    • 2) Notification of floor rates for property tax.
    • These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively.
    • Similarly, the Atmanirbhar Bharat Abhiyan links Rs 50,000 crore of additional borrowing limits for states to reforms in property taxes and user charges for water and sanitation.
    • There is also a thrust on municipal bonds and municipal finance reform conditions under AMRUT.

    3) Distinguishing between million-plus urban agglomerations, and other cities

    • The XV FC has adopted an approach of distinguishing between million-plus urban agglomerations, and other cities.
    • This is well-founded, based on the pattern of urbanisation in India, where 53 million-plus urban agglomerations comprising 250-plus municipalities account for approximately 44 per cent of the total urban population.
    • The remaining 4,250-plus municipalities comprise 56 per cent of the total urban population.
    • Of the remaining 56 per cent, there is a “long tail” of approximately 3,900 municipalities with 33 per cent of the total urban population.
    • The XV FC has now provided for 100 per cent outcome-based funding of approximately Rs 9,000 crore to 50 million-plus urban agglomerations (excluding Union Territories) with specific emphasis on air quality, water supply and sanitation and basic grants to the rest of the cities, with 50 per cent of the end-use tied to water supply and sanitation.
    • For the first time, there is also an acknowledgement of the metropolitan area as a unified theatre of action to solve complex challenges of air quality, water and sanitation, with implicit emphasis on inter-agency coordination.

    4) Common digital platform for municipal accounts

    • The report recommends a common digital platform for municipal accounts, a consolidated view of municipal finances and sectoral outlays at the state level, and digital footprint of individual transactions at source, the FC has broken new ground and demonstrated farsightedness.

    Role of the state governments

    • The ultimate responsibility for municipal finance reforms remains with state governments.
    • Constitutional bodies such as the finance commission can, at best, prepare the ground and provide incentives and disincentives.
    • We need municipal legislation to reflect progressive and enabling financial governance of our cities through five reform agendas:
    • 1) Fiscal decentralisation including strengthening state finance commissions.
    • 2) Revenue optimisation to enhance own revenues.
    • 3) Fiscal responsibility and budget management to accelerate municipal borrowings.
    • 4) Institutional capacities towards an adequately skilled workforce.
    • 5) Transparency and citizen participation (for democratic accountability at the neighbourhood level).
    • The first step needs to be predictable fiscal transfers from state governments to municipalities and other civic agencies on a formula-based approach as against the present practice of ad hoc, discretionary grants.
    • State finance commissions would need to emulate the XV FC and its predecessors, and emerge as credible institutions.
    • State governments need to ensure that state finance commissions are constituted on time, resourced right, and their recommendations taken seriously.

    Consider the questions “Financial governance of our cities faces several challenges. Discuss the reforms that could transform the financial governance of municipalities”

    Conclusion

    The state government must act on these reform agenda and ensure the transformation of financial governance of their municipalities.

  • Comptroller and Auditor General (CAG)

    The article highlights the importance of CAG in times of disasters to ensure check and balances.

    Context

    • With the nation spending substantial resources to manage the pandemic, the role of Comptroller and Auditor General (CAG) of India has come into prominence.

    Opportunity for corruption in pandemic

    • Allegations of siphoning off of funds to purchase the inferior quality at prices higher than those prevailing in the market are made.
    • The opportunity to indulge in corruption exists in disaster management.
    •  Emergency procurement to save lives and reduce sufferings are a chance to obfuscate rules and procedures and can happen in all three tiers of governance.

    Role of the CAG

    • If all the major purchases by governments are audited by the CAG, there can be substantial improvement in disaster management.
    • It will usher in better transparency, integrity, honesty, effective service delivery and compliance with rules and procedures and governance.
    • The CAG has issued an order creating a new vertical — health, welfare and rural development, restructuring the office of the Director General of Audit, Central Expenditure.
    • It is necessary that the CAG undertakes performance audits of COVID-19 related procurements, the Central Government Health Scheme (CGHS) and Employee State Insurance (ESI) hospitals.
    •  A beneficiary survey will become part of the audit process to bring out efficacy of service delivery and the availability and quality of drugs.
    • Audit recommendations can contribute improvements in various aspects of disaster preparedness, management and mitigation.

    Benefits of audit

    • The statutory responsibility of CAG includes appraising disaster preparedness, ensuring that management, mitigation operations, procedures are complied with, and proper internal controls are in place.
    • Ensuring that there are proper records, documentation, authentic, accurate, reliable and complete information and data.
    • Providing assurance to people’s representatives, tax payers and the public at large that government resources are being used prudentially as per the law and regulations and safeguarded.
    • Providing assurance that risks are assessed, identified and minimised with established disaster management process and procedures.
    • Offering assurance that resources are being used economically efficiently and effectively for achieving the planned objectives and that benefits have gone to the targeted beneficiaries.

    Conclusion

    All public entities management must be accountable and ensure that resources are managed properly and used in compliance with laws and regulations; programmes are achieving their objectives; and services are being provided efficiently, effectively, and economically.

  • Commission for Sub-Categorization of OBCs

    The Union Cabinet has approved the extension of the term of the Commission to examine the issue of Sub-categorization of Other Backward Classes, by 6 months i.e. upto 31.1.2021.

    Practice question for mains:

    Q.The quota policy for OBCs needs a revisit. Comment.

    About the commission

    • The Commission was constituted under Article 340 of the Constitution in 2017 under the chairmanship of Justice (Retd.) Smt. G. Rohini.
    • The Commission has since interacted with all the States/UTs which have subcategorized OBCs, and the State Backward Classes Commissions.
    • The expenditure related to the establishment and administration costs of the Commission is borne by the Department of Social Justice and Empowerment.

    Background

    • The Supreme Court in Indra Sawhney and others vs. Union of India case (1992) had observed that there is no constitutional or legal bar on states for categorizing OBCs as backward or more backward.
    • It had also observed that it is not impermissible in law if a state chooses to do sub-categorization.
    • So far, 9 states/UTs viz. Karnataka, Haryana, Andhra Pradesh, Jharkhand, Puducherry, Telangana, West Bengal, Bihar, Maharashtra and Tamil Nadu have carried out sub-categorization of OBCs.
    • However, there was no subcategorization in the central list of OBCs so far.

    Why need a sub-categorization?

    • Presently, half of these 1,900-odd castes have availed less than three per cent of reservation in jobs and education, and the rest availed zero benefits during the last five years.
    • Five-year data on OBC quota implementation in central jobs and higher educational institutions showed that a very small section has cornered the lion’s share.
    • A/c to the Commission, the classification is based on relative benefits availed and not relative social backwardness, which involves parameters such as social status, traditional occupations, religion, etc.

  • Need for fiscal decentralisation

    Covid pandemic has turned the fiscal health of states from bad to worse. This article highlights the role of the Finance Commission as a neutral arbiter in the Centre-state relation in achieving the delicate balance. It has highlighted certain issues that the commission has to consider when it submits its report. So, what are those issues? Read to know…

    Disruption in fiscal consolidation and impact on Centre-state relations

    • Due to COVID, there is a  collapse in general government revenues and the consequent rise in the deficit levels.
    • It has disrupted the glide path of fiscal consolidation.
    • But it has also deepened the faultlines in Centre-state fiscal relations. 
    • The Centre is trying to claw back the fiscal space ceded to the states and assert its dominance over the country’s fiscal architecture.
    • This coupled with the fiscal constraints exposed by the pandemic have made it harder to maintain the delicate balance needed to manage the contesting claims of the Centre and the states

    Why the 15th Finance Commission report is critical for decentralisation

    • It will be ironic if the ongoing health crisis that has ended up exposing the limitations of a centralised approach, ends up reversing the trend towards fiscal decentralisation.
    • The Commission’s report will be critical on two counts:
    • First, it will determine how India’s fiscal architecture is reshaped.
    • Second, how Centre-state relations are reset as the country attempts to recover from the COVID-19 shock.

    1. Will the burden of reducing debt/gdp  fall equally on Centre and state?

    • The glide path of fiscal consolidation laid out by the FRBM review committee had envisaged bringing down general government debt to 60 per cent of GDP by 2022.
    • This is unlikely to materialise now.
    • Factoring in the additional borrowings, the debt-to-GDP ratio may well be over 80 per cent this year.
    • Thus the fiscal consolidation roadmap will have to be reworked.
    •  As per its terms of reference, the Finance Commission will lay out the new path to be followed by both Centre and states.
    • But the question is: Will the burden of debt reduction fall equally upon the Centre and states?
    • Or will the Commission allow the Centre to have greater leeway when it comes to fiscal consolidation?

    2. Will the conditional extension of borrowing limit be formalised?

    •  Recently, the Centre eased the states’ budget constraint, allowing them to borrow more this year.
    • But this extra borrowing was conditional upon states implementing reforms in line with the Centre’s priorities.
    • Despite protests, most states are likely to comply with the conditions, to varying degrees.
    • But the issue is: As the hit from the ongoing crisis spreads over multiple years, state governments may want to maintain their expansionary fiscal stance next year as well.
    • Then, will the Finance Commission, in line with its terms of reference, go along with the Centre’s stance and recommend imposing conditions on additional borrowing and formalise this arrangement?
    • It is difficult to see such an arrangement being rolled back once formalised.

    3. GST compensation cess

    • The GST council, in which the Centre effectively has a veto, is yet to clearly spell out its views on the extension of the compensation cess to offset states losses beyond the five-year period.
    • The Commission will have to weigh in on this too.
    • At this time the Centre is struggling to fulfil its promise of assuring states their GST revenues.
    • In such situation, will the Commission argue in favour of extending the compensation period, as states desire, but, perhaps, lowering the assured 14 per cent growth in compensation and linking it to nominal GDP growth?
    • As GST revenue accounts for a significant share of states’ income, how this plays out will also have a bearing on their ability to bring down their debt levels.

    4. Issue of tax devolution

    • In some sense, accepting the recommendations of the 14th Finance Commission was a fait accompli.
    • The terms of reference of the 15th Finance Commission points to the present government’s desire to claw back the fiscal space offered to the states.
    • But is clawing back fiscal space now a prudent approach?
    • A cash-strapped Centre will surely welcome greater say over the diminished resources.
    • And there a strong argument for the Centre to have far greater fiscal space than it currently enjoys.
    • This is partly because the fiscal multiplier of central government capital spending is greater than that by the states.
    • But also the nature of politics may well push in that direction.
    • Centralisation of political power may well lead to demands for centralisation of resources.
    • However, surely fiscal space can be created by a review of the Centre’s own spending programme.

    Need to relook at the Centre’s expenditure priorities

    • Over the past decades, there has been a substantial increase in the Centre’s spending on items on the state and concurrent list.
    •  This shift has occurred even as grants by the Centre to states exceed the former’s revenue deficit.
    • This, as some have pointed out, effectively means that the Centre is borrowing to transfer to states.
    • Surely, a relook at the Centre’s expenditure priorities would create greater fiscal space for it.

    What the Finance Commission can do?

    • Any attempt to shift the uneasy balance in favour of the Centre will strengthen the argument that this government’s talk of cooperative federalism serves as a useful mask to hide its centralising tendencies.
    • As a neutral arbiter of Centre-state relations, the Finance Commission should seek to maintain the delicate balance in deciding on contesting claims.
    • This may well require giveaways especially if states are to be incentivised to push through legislation on items on the state and concurrent list.
    • The fiscal stress at various levels of the government necessitates a realistic assessment of the country’s macro-economic situation, the preparation of a medium-term roadmap, as well as careful calibration of the framework that governs Centre-state relations.
    • At this critical juncture, the Finance Commission should present the broad contours of the roadmap.
    • Though it could request for another year’s extension to present its full five-year report citing the prevailing uncertainty.

    Consider the question “COVID pandemic has put the States in the dire fiscal position. What we need is more of the fiscal decentralisation now.” In light of this, along with other factors, elaborate on the role 15th Finance Commission could play in this regard.

    Conclusion

    Finance Commission has to play an important role in achieving the delicate balance in the conflicting domain of finance by addressing the concerns of both the players.

  • Central Administrative Tribunal (CAT) bench for the UT of J&K and Ladakh

    The union govt. has inaugurated the 18th Bench of Central Administrative Tribunal (CAT) for the Union Territories of Jammu and Kashmir and Ladakh.

    Try this question from our AWE initiative:

    “The Central Administration Tribunal which was established for redressal of grievances and complaints by or against central government employees nowadays is exercising its powers as an independent judicial authority.” Explain. (10 Marks)

    What is Central Administrative Tribunal (CAT)?

    • The Central Administrative Tribunal had been established under Article 323 – A of the Constitution for adjudication of disputes and complaints with respect to recruitment and conditions of service.
    • It aims to provide speedy and inexpensive justice to the aggrieved public servants.
    • It adjudicates for the persons appointed to public services and posts in connection with the affairs of the Union or other authorities under the control of the Government.
    • In pursuance of Article 323-A, the Parliament has passed the Administrative Tribunals Act in 1985.
    • The act authorizes the Central government to establish one Central Administrative Tribunal and the state administrative tribunals.

    Composition of the CAT

    • The CAT is a specialist body consisting of Administrative Members and Judicial Members who by virtue of their specialized knowledge are better equipped to dispense speedy and effective justice.
    • A Chairman who has been a sitting or retired Judge of a High Court heads the Central Administrative Tribunal.
    • There are now 18 Benches and 21 Circuit Benches in the CAT all over India.

    Its functioning

    • It exercises jurisdiction only in relation to the service matters of the parties covered by the Administrative Tribunals Act, 1985.
    • The Tribunal is guided by the principles of natural justice in deciding cases and is not bound by the procedure, prescribed by the Civil Procedure Code.
    • Under Section 17 of the Administrative Tribunal Act, 1985, the Tribunal has been conferred with the power to exercise the same jurisdiction and authority in respect of contempt of itself as a High Court.

    Independence of working

    • The conditions of service of the Chairman and Members are the same as applicable to a Judge of High Court as per the Administrative Tribunals (Amendment) Act, 2006.
    • The orders of CAT are challenged by way of Writ Petition under Article 226/227 of the Constitution before respective High Court in whose territorial jurisdiction the Bench of the Tribunal is situated.

  • A weak rebuke: It’s unfortunate EC didn’t punish hate speech in Delhi campaign

    Context

    Campaign for the Delhi Assembly election in which the development debate was overshadowed by hate-mongering and outpouring of communal vitriol underscores need to do more.

    Understanding the Model Code of Conduct (MCC)

    • Behavioural guidelines: It is a set of behavioural guidelines for political parties and candidates for-
      • The peaceful conduct of elections.
      • To prevent hate speech.
      • Malpractices.
      • Corruption and
      • Misuse of government machinery by the ruling party.
    • Not judicially enforceable: Since it is not an Act passed by Parliament, the Code is not judicially enforceable.
      • The action against a violator usually takes the form of an advice, warning or censure.
      • No punitive action can be taken.
      • No wonder, many consider the Code as toothless.
    • Moral authority: It is not toothless though. Its moral authority far outweighs its legal sanctity.
      • Political leaders worth their salt are scared of inviting a notice for a violation, as it creates negative public opinion.
      • Besides, unlike the legal processes, its impact is instant.

    The legality of the MCC

    • Test of legality in the courts: The legality of the code has been judicially tested.
      • First legal acceptance: Its first judicial acceptance came in 1997 when the Punjab and Haryana High Court gave the EC the power to enforce the code.
      • “Such a code of conduct when it is seen that it does not violate any of the statutory provisions can certainly be adopted by the Election Commission for the conduct of free and fair election, which should be pure as well,” the Court said.
      • The SC has repeatedly held that this must be enforced strictly.

    Parallels between the MCC and other legal provision

    • The first section of the MCC lays down that-Part 1 (1) “ No party or candidate shall include in any activity which may aggravate existing differences or create mutual hatred or cause tension between different castes and communities, religious or linguistic.”
    • “…Criticism of other parties or their workers based on unverified allegations or distortion shall be avoided.”
    • Parallels with RPA: The Representation of the People Act (1951) categorically defines the above two as corrupt practices in Section 123 (3A) and Section 123 (4) respectively.
      • Section 125 of RPA provides for punishment for similar violations.
    • Parallels with IPC: It is important to note that Section 153A of the Indian Penal Code has a similar provision:
      • Promoting enmity between different groups on ground of religion, race, place of birth, residence, language, etc., and doing acts prejudicial to maintenance of harmony.

     Refreshing change

    • Prompt action: It must be appreciated that the EC was prompt in its action against the leaders accused of hate speech in Delhi election campaign.
      • While it instantly, suo moto, deprived the two leaders of their star campaigner status, it also punished them with a gag order, using the ultimate weapon provided by Article 324.
      • The EC flexing its muscle outside the so-called “toothless” MCC and invoking Article 324 is indeed a refreshing change.
      • In earlier instances, it often had to let the culprits go with a mere “warning, caution or censure”.
      • In its notice to a leader, the EC cited Sections 123 and 125 of the RP Act.

    Conclusion

    • Historically, the EC has always taken simultaneous action under the Model Code of Conduct and the other two provisions. While the MCC produces instant results, the penal provisions involve endless judicial processes. Not taking action under the IPC encouraged violators to commit repeat offences.