A member of the 16th Finance Commission has defended the 14th Finance Commission's generous tax devolution recommendations, arguing they fulfill constitutional obligations rather than represent retrofitting reforms. According to reports from Business Standard, the expert emphasized that Finance Commissions have a critical role in fostering balance between fiscal capacities and needs of the Union and states, and among states inter se. The Commission's task involves distributing available resources between constitutionally mandated subjects, with the Sixth Finance Commission stating this as 'the distribution of available resources as between the subjects coming constitutionally within the competence of Centre and those coming within the purview of states.'
The 14th Finance Commission was not limited by terms of reference that restricted scope to non-plan requirements, unlike previous Commissions from the first to the 13th. As reported by Business Standard, the expert noted that had the 14th Commission confined itself to non-plan requirements, it would have violated its Constitutional mandate. The Commission's scope includes meeting entire revenue expenditure requirements of states, with the divisible pool estimated at ₹10.55 trillion in 2014-15 based on states' share of Union taxes at 32%. Plan grants, including normal central assistance, special plan assistance, additional central assistance, and backward region grant fund, amounted to ₹1.02 trillion in 2014-15, representing 9.5% of the divisible pool for total plan grants.
The expert highlighted concerns about the Central Sector Schemes (CSS) expansion, noting that between 2002-05 and 2005-11, revenue expenditure by the Union government on State List subjects increased from an average of 14% to 20%, and on Concurrent List subjects from 13% to 17%. According to Business Standard, this expansion was achieved by reducing the divisible pool through levying cesses and surcharges. The expert suggested a ceiling of 49% of gross tax revenues for total transfers, implying that CSS should be limited to meritorious services with large spillovers. The 16th Commission has recommended establishing a high-power committee to evaluate all CSS and urged closure of inefficient schemes.
The expert emphasized that fiscal federalism theory supports unconditional transfers enabling jurisdictions to provide comparable public services at comparable tax effort. As reported by Business Standard, this implies elected governments in states should decide public spending composition subject to Union borrowing ceilings under Article 293(3). The expert questioned whether all 28 umbrella schemes are meritorious, noting that even schemes like Sarva Shiksha Abhiyan had 42 interventions. The analysis highlighted that while states like Tamil Nadu utilize more MGNREGA funds than Bihar, the largest concentration of poor, questions remain about opportunity costs and more effective interventions.
