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The Union Cabinet Wednesday extended the term of the 15th Finance Commission by one year to October 30, 2020. The Commission will submit two reports — with the first to be for the first fiscal, i.e., 2020-21 and for rest of the financial years, 2021-22 to 2025-26, by October 30 next year.
The term of the Commission, which has to decide on division of tax and other resources between the Centre and the states, was originally set to end in October 2019, but was extended to November 30. The extension of the term will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2026, a government release said.
“The Commission, on account of the restrictions imposed by the Model Code of Conduct, completed its visit to states only recently. This has had a bearing on the detailed assessments of states requirements,” it said. The terms of reference (ToR) for the commission are wide-ranging in nature, the release said. “Comprehensively examining their implications and aligning them to the requirements of the states and the central government will require additional time,” it added.
The proposed increase in coverage of the period for which the Commission’s recommendations are applicable will help medium-term resource planning for the state governments and the Centre.
“Making a five-year coverage available for the commission beyond 1st April 2021, will help both state and central governments design schemes with medium- to long-term financial perspective and provide adequate time for mid-course evaluation and correction,” the release said.
It is anticipated that the impact of the economic reforms initiated in the current FY would be manifested in the data by the end of first quarter 2020-21, it added.
The Commission’s Chairman NK Singh had last week said that it is likely to get an extension since it was still awaiting communication from the President regarding inclusion of Union territory of Jammu and Kashmir in its ToR as defined in the Jammu and Kashmir Reorganisation Act, 2019.
Section 83 of the Act — which came into effect when the state of Jammu & Kashmir bifurcated into union territories of Jammu & Kashmir and Ladakh on October 31 — requires the President to “make a reference to the 15th Finance Commission to include the Union Territory of Jammu and Kashmir in its Terms of Reference and make award for the successor Union territory of Jammu and Kashmir.”
As per the Constitution, the Finance Commission is required to recommend the distribution of net proceed of taxes between the Union and states, and no Finance Commission has ever made an award for any union territory.
Any special dispensation for the Union Territory of J&K will also have to be done keeping in view similar demands by two other union territories with a legislature, Delhi and Puducherry, to be part of the divisible pool.
