While the award from the 15th Finance Commission is valid till the fiscal year 2025-26, the Center wants to ensure that the next panel is given sufficient time to address the issues and make recommendations. The last committee was affected by the pandemic, resulting in two sets of recommendations: one for the 2020-2021 fiscal year and the second for 2021-2026. Moreover, Jammu & Kashmir and Ladakh were demarcated as separate union territories during the tenure of the last Finance Commission.
For any finance committee, the main agenda item is the distribution of resources between the Center and the states, which is currently fixed at 41.5% of the shareable pool. In addition to the resources to be transferred directly to the third level, the Center often complains that it is left with hardly any money, especially when a large part of the expenditure is in sectors such as healthcare and education is also caused by it.
For their part, states – especially those ruled by the opposition – have complained about the scarcity of financial resources, even as they are accused of being extravagant. In fact, policymakers and experts consider freebies as one of the key challenges facing the states, an issue on which the Center has already expressed concern. In fact, they see it as an issue on which the Commission’s assessment will be crucial. A related issue will be the old pension scheme, which will be reintroduced in several states.
With Covid driving up borrowings, the limit proposed by the 15th Finance Commission has also not been implemented, with several states exceeding the limit. For the states, life after the rollout of GST will be a key issue as the a compensation for “losses” (basically for annual growth of less than 14%) has come to an end. When finalizing the mandate, the cabinet will also have to look for a chairman and members, about which there is already discussion.
