The roadmap of fiscal federalism promulgated by the Narendra Modi government with the firming up of GST laws among other things, may not have contributed to fiscal prudence. Both the Centre and states, most of them BJP-ruled, had faltered in adhering to healthy fiscal roadmap. Also, the NITI Aayog had made little difference in rationalising expenses on Centrally Sponsored Schemes (CSS), observed the 15th Finance Commission.
The Commission in a bid to discuss its findings and seeking more accountability from the Centre and state governments, have started a consultation process along with the RBI and economists. "We are taking the observations for discussion with everyone to find a way to adhere to the fiscal limits," said N.K. Singh, chairman, 15th Finance Commission.
Singh met Shaktikanta Das, RBI governor in Mumbai on Thursday, and also met other eminent economists and bankers in Delhi a day prior. Among the many observations of the Commission, it seems to have laid a special emphasis on the role of NITI Aayog, which manages the Centrally Sponsored Schemes (CSS).
While close to Rs 3.5 lakh crore is spent on these schemes and their funds transferred to the states, the Aayog, has seemingly made very little headway to bring down this expenses. Instead, the efforts of the NITI Aayog in the last two years have brought very little real results in bringing down central expenditure on these various social security schemes.
“On one hand we appreciate that the states received a better share from the Centre, I believe the way to rationalise the release of these funds to states still needs to be developed by NITI Aayog," said Singh. Earlier in April, NITI Aayog Vice Chairman Rajiv Kumar, had made a presentation before the Commission reasoning the release of central funds based on their performance in rolling out the schemes.
The number of Centrally Sponsored Schemes were rationalised to 28 from 66 earlier during 2016-17, after consultation of the NITI Aayog with a sub-group of chief ministers.
Speaking about fiscal deficit targets, the Commission observed that while the state's shares were increased by the 14th Finance Commission, the responsibility of adhering to deficit borrowing limits were often over shot by states as well as the Centre. “We need to meet the fiscal deficit target without slowing the economy too much,” said Singh.
According to officials in the know, the discussions are likely to result in concrete policy roadmaps for the Centre and states in attaining common goals, and adhering to a more responsible practice of market borrowings to meet budget deficits.
"We are closely looking at what kind of disaggregated debt, growth and fiscal deficit trajectory would be practical to attain the overall objective of central government's debt and fiscal deficit being consistent with the FRBM targets and yet within the bounds of practicality," Singh said after a meeting with the RBI Governor and his team.
After the Planning Commission was dissolved and replaced with the most less powerful NITI Aayog in 2015 by the Modi government, many powers of the central planning body, like evaluating the need and releasing funds to states and also the power to oversee the use of funds, were dissolved and taken up partly by the finance ministry.
The Finance Commission said that economists during interaction had also indicated that the government should take measures to correctly predict GST collections, which had seen a shortfall resulting in lesser overall tax revenue for the Centre as well as states. They warned the Centre and states from taking up large borrowing programmes just to trigger economic activity, instead, they said that borrowing programmes should be better thought out and should be aimed at achieving long term goals, rather than seeking short term panacea.
