Finance Commission Met Top Economists in Mumbai

The Finance Commission recently met a group of eminent economists in Mumbai, during its two-day visit to the city.

The economists put forth a diverse array of issues for the consideration of the Commission.

They viewed there is a need to adopt a total view on the borrowing requirements of the consolidated public sector.

This should encompass off-budget transactions, borrowings of the public sector undertakings and contingent liabilities of both the Union and State Governments. This is important from many angles, including debt sustainability, fiscal transparency and proper coordination of fiscal and monetary policies, they added.

It should be carefully examined whether the increased tax devolution by the 14th Finance Commission has led to improvements in the social spending of State Governments, the economists viewed.

There is possibly a mismatch between the demand and supply of state development loans, which can affect the cost of borrowings of state governments in the next five years.  Given the maturity profile of state loans, there can also be repayment pressure on these loans during the period of the 15th FC, they viewed.

Indications are that the fiscal deficit to GSDP ratio of the States taken as a whole is gradually declining, after the spike seen in 2015-16 and 2016-17, the economists said the commission.

The quality of budgeting needs to improve, they said adding that Governments should not budget for a low fiscal deficit, knowing fully well that it cannot be achieved.  Projections of revenues from GST is tricky, but not impossible if one can work with the available data.

The economists also made suggestions regarding the formula for horizontal devolution of Central taxes among States and the provision of grant-in-aid to the State Governments.

Given the shift from the use of 1971 population to 2001 population, some economists pointed towards the need for instituting an incentive structure in devolution.  The composition of population in terms of proportion of elderly in population is becoming significantly different across States.