Finance Commission – Issues related to devolution of resources

Time to have institutional mechanism like Fiscal Council to enforce rules: NK Singh


Mains Paper 2: Polity | Appointment to various Constitutional posts, powers, functions and responsibilities of various Constitutional Bodies

From UPSC perspective, the following things are important:

Prelims level: Fiscal Council

Mains level: Mandate of the finance commission


  • Stressing on the need to have uniform rules for fiscal consolidation of States and Centre 15th Finance Commission’s Chairman NK Singh called for institutional mechanism like a ‘Fiscal Council’ to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.

A check over borrowings

  • For state government liabilities, Article 293 (3) provides a constitutional check over borrowings.
  • But there is no such restriction on the Centre.
  • It is time we have an alternative institutional mechanism like Fiscal Council to enforce fiscal rules and keep a check on Centre’s fiscal consolidation.
  • Singh had earlier proposed creation of an autonomous Fiscal Council with representatives from both states and Centre, but the recommendation was not implemented.

Why need Fiscal Council?

  • Various cesses and surcharges are becoming disproportionate proportion of overall divisible revenue.
  • There should be some mechanism to ensure that the basic spirit of the devolution process should not be undercut by clever financial engineering or taking recourse to traditions.
  • There is a need for coordination between the finance commission as well as the GST Council, which he termed as the only federal institution in the country.
  • There’s need for coordination between Finance Commission and GST council.
  • GST Council has no clue of what the Finance Commission is doing and Finance Commission has even lesser clue of what the GST Council is doing.

The municipal example

  • It is very clear that successful economic growth, successful good quality employment depends on agglomerations that work.
  • That in turn is going to depend on whether municipalities have enough revenue.
  • What the municipalities get today in terms of revenue is one per cent of GDP whereas on comparative basis, looking at other emerging market countries, it really ought to be 5 per cent of GDP.
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