Need to revisit Seventh Schedule, says 15th Finance Commission chairman NK Singh

Financial Express , Dec 12, 2020

The 15th Finance Commission chairman NK Singh on Friday called for a revisiting of the Seventh Schedule of the Constitution that divides the legislative powers between the Centre and states, in an apparent disapproval of a perceived tendency of the Centre to expand the Concurrent List, at the cost of states’ exclusive, legitimate powers. The division of functions enshrined under Seventh Schedule of Constitution got increasingly eroded over a period of time, beginning with the constitution of the Planning Commission in 1951 and later, the shifting of the subjects like forest and education from the state to the Concurrent List by the 42nd Amendment of the Constitution, he noted. “Some examples in today’s context are the Mahatma Gandhi National Rural Employment Guarantee Act of 2005 and the National Food Security Act 2013. Thus, we need to revisit the VII Schedule of the Constitution in a more fundamental way,” Singh said, at a FICCI forum. He also stressed the need for rationalisation of the centrally sponsored schemes (CSS) with greater flexibility to each state.

The commission on Centre-State Relations, headed by Justice M M Punchhi, in 2010 recommended that the Union should only transfer those subjects into the Concurrent List, which are central to achieving demonstrable national interest. Singh, who recently submitted the commission’s report to the President of India for the award period FY22-FY26, also pitched for continuity on aligning the fiscal consolidation road map of the Centre and the states and said a fiscal deficit range rather than a single point as target, might be in order.

“We need to give serious consideration for a consultative forum for credible policy dialogue between the Centre and the states. The Niti Aayog has emerged as a credible think-tank and their work in the sphere of Centre-state relations needs to be recognised. However, the states are keen to have a different kind of a policy-based consultative forum. This is an area which deserves serious consideration of policy makers.

“There is a need for continuity on aligning the fiscal consolidation road map of the Centre and the states in a more harmonious symmetry. A differentiated debt path of states which recognises the present constraints and issues of legacy debt must be handled with sagacity and sensitivity. This is more required in times of adversities like the world is facing now due to the pandemic,” Singh said.

The Centre recently allowed additional borrowing space of 2% of GDP for states this year (over and above 3% mandated under FRBM) based on reforms in four areas — universalisation of one nation-one ration card, ease of doing business, power distribution and urban local body revenues.

“A fiscal range than a fiscal point based on expenditure outcomes may be the need of the hour,” Singh said, adding, that these issues were sought to be addressed in the commission’s recommendation for award period for FY22-FY26.

On CSS, he said the government needs to constitute an empowered group of domain experts to submit to the finance minister and Prime Minister on modalities of further and deeper rationalisation of these schemes. Based on the internal exercise of the 15th Finance Commission, there are approximately 211 schemes/sub-schemes under the 29-umbrella core and core of the core schemes.

“The Centrally sponsored schemes should be flexible enough to allow states to adapt and innovate. We also need a far more credible policy for rationalisation of Centrally Sponsored Schemes and Central outlays than have been possible so far.” The total public outlays on the CSS are close to Rs 6-7 lakh crore per annum with the Centre’s share over Rs 3.5 lakh crore or 1.2% of current GDP, he said.

He also said the symmetry in the working of the GST Council and the Finance Commission deserves serious considerations. The Finance commissions recommend distribution of revenues between Union and the states and thereafter, among the states further to the third tier. They look at projections of the expenditure and revenue, but issues of GST rates exemptions, changes, and implementation of the indirect taxes are entirely within the domain of the GST Council.

Also Read