The Chairman of India’s 15th Finance Commission on Sunday outlined the changes in criteria that affect the mandate of the panel and the various challenges that lie before it. Nand Kishor Singh, former IAS officer and former Rajya Sabha MP from Bihar, also the Chairman of the 15th Finance Commission which will lay India’s fiscal roadmap from 2021to 2025, was speaking at IIMA. He elaborated on the functioning of the finance commission, his mandate and his plans for choosing parameters for allocation of funds to states.

Speaking about the challenges before the commission, Singh said, “The foremost challenge is to balance equity and performance. While, broadly speaking, all Indians have an equal right to development, we must also see how certain states have used or not used these funds before allocating them". 

Speaking about the seventh schedule of the Constitution that defines the roles of the union and state governments, Singh said, “While the union list and state lists define the roles of the respective governments, the concurrent list, on which both governments can work, is the one where roles need to be defined clearly. The states can complain that labour and education were in the state list earlier it is not their fault that it has been put in the concurrent list, thus leading to a cut in state funding in that sector. We have to see the liabilities of each government and then distribute resources.”

The most important point is the distribution of funds based on parameters and what should the weightage of each criteria be, said Singh. “We have to look at population, size of states, equalisation of development and history of management of state funds.”

Fielding questions on the criteria selection, Singh said that he had commissioned more than 60 studies all over the country. On the weightage of each parameter and if all four will be taken into account, Singh said, “We will be using a mix of all parameters and also look to the weightage given to each one by previous commissions before coming to a decision.”

Speaking on the population criterion, Singh mentioned that the previous commissions used census data from 1971as base value while he would be using the 2011census data. It is interesting to note that several CMs of South Indian states opposed the changing of the census year arguing that their funding would be cut due to declining populations.

On the criterion of equalisation between states, Singh said, “While the commission appreciates the development in states like Gujarat for their own people and contribution to the national economy, we cannot forget lesser developed states and the need for the development of their people.”

Answering a question on the funding of panchayats and urban civic bodies and higher rates of corruption and inefficiency therein, Singh concurred, saying, “The accounts of panchayats in some states are deplorable.

However, recent visits to panchayats of Kerala and West Bengal have opened my eyes to many innovations in governance and book-keeping.”

Introducing the audience to Fiscal Federalism and the role of the Finance Commission therein, Singh said, “There are three major roles of the Commission. First is to get to the distribution of funds as to total collection room of taxes as against the cost of collection. The second is horizontal distribution which is recommending the allocation of funds for the union government and to each state.

The third is to provide recommendations on funding for local bodies, both urban and rural.”

The fifteenth Finance Commission was set up through a gazette notification after approval by the President of India in November 2017.