The Fifteenth Finance Commission interaction with economists in Karnataka

Dr Govinda Rao and Pranay Kotasthane from the Takshashila Institution participated in an interaction with the XV Finance Commission of India on the Terms of References of the Commission on 24th June 2019.

They highlighted issues related to the vertical distribution of funds between the Union and the States.

Pranay spoke about how States could lose more than 1.9 lakh crores in Revenue Deficit Grants. He argued that by suggesting that revenue deficit grants may not be provided at all, the 15th FC is being nudged towards violating the provisions under Articles 275(1) and 280(3b) of the Indian Constitution.

He also contended that by suggesting that the impact of the “substantially enhanced” devolution by the 14th FC be reviewed, the 15th FC is being nudged towards reducing the tax devolution to the States to meet requirements of the central schemes. If implemented, States will lose their policy independence and instead will be limited to implementing central schemes. This goes against the spirit of federalism. If un-tied transfers to the States reduce going ahead, States will not be able to determine their own priority development areas.