YV Reddy named chairman of 14th Finance Commission
New fiscal consolidation road map,
mechanism for compensation once GST effected, main challenges for panel
First Published: Wed, Jan 02 2013.
11 20 AM IST
A file photo of Y.V. Reddy. Photo: Abhijit Bhatlekar/Mint
Updated: Thu, Jan 03 2013. 01 26 AM IST
New Delhi: The government on Wednesday constituted the much-delayed 14th
Finance Commission under the chairmanship of former Reserve Bank of India (RBI)
governor Y.V. Reddy to
review the distribution of resources among the Centre, states and local bodies.
The terms of reference include a new
fiscal consolidation road map, devising a mechanism to compensate states in
case of revenue loss due to the implementation of a single goods and services
tax (GST), a blueprint for subsidy reform, and also insulating the pricing of
public utility services such as drinking water, irrigation, power and public
transport from policy fluctuations through statutory provisions.
The members of the panel include M. Govinda Rao,
director, National Institute of Public Finance and Policy (NIPFP); Sudipto Mundle,
former acting chairman, National Statistical Commission; and Abhijit Sen,
member, Planning Commission. Sen will serve as a part time member. The
recommendations of the committee will cover a five-year period starting 1 April
2015. The recommendations of the 13th Finance Commission headed by former
finance secretary Vijay Kelkar are
valid till 31 March 2015.
The commission has also been asked to
look into the level of subsidies required for sustainable and inclusive growth,
and the equitable sharing of subsidies between the Centre and state
governments. It will also draw up recommendations on making public sector
enterprises more competitive and market-oriented, issues regarding their
listing and divestment as well as ways of relinquishing non-priority
enterprises.
The other members of the Kelkar panel
were Indira Rajaraman, Atul Sharma and Sanjiv Misra.
It raised the state’s share in net tax proceeds to 32.5% from the 31% set by
the 12th Finance Commission led by C. Rangarajan.
The Kelkar commission not only
increased the share of urban areas in net tax proceeds nearly five times, it
also moved away from fixed transfers to a formula (as a percentage share of the
divisible pool of taxes). It also put in place incentives linked to performance
metrics.
The 14th Finance Commission’s terms of
reference are very comprehensive, saidPratap Ranjan Jena,
associate professor at NIPFP. “The two critical points before the commission are
devising a fiscal road map going beyond 2014-15 and formulating a mechanism for
compensation once GST is implemented,” he said.
While announcing the formation of the
new finance commission, finance ministerP. Chidambaram said
the government had made special reference to the issues concerning
debt-stressed states to the panel. The commission will also take into account
taxation efforts and the potential for increasing the tax-GDP ratio by such
states, he said.
“All this will help the finance
commission in making recommendations for states that are far away from the
national average,” he said.
Chidambaram also indicated that the
government may revise the criteria for according special category status to
states. “Existing criteria were formulated some time ago. And perhaps it is
time to revisit the criteria,” he said, responding to queries over Bihar chief
minister Nitish Kumar’s
demand for special category status for the state.
