ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Tasks before Eleventh Finance Commission

The award of the Eleventh Finance Commission (EFC), to paraphrase the finance minister, will be the first of the new century and of the new millennium. But to live up to this historic role, the EFC must blaze a new trail and get away from the well-trodden path of tinkering with percentages for vertical and horizontal distribution of funds. What is required are bold departures from the past. Some expectations of the EFC.

Even before the submission of its final report, the Eleventh Finance Commission (EFC) is in the news. Along with the need to increase damaniam Committee report on national security which necessitated additional outlay for defence. These were absolutely unavoidable pieces of expenditure. If I did not have this burden on my back, the fiscal deficit would have been less than 4 per cent”, bemoaned the finance minister.1 Financial devolution to states is according to a Constitutional scheme for division of resources between the centre and the states and cannot be said to be a cause for the financial troubles of the union finance minister, unless the recommendations in the interim report are meant as large give-aways to the states. The contents of the interim report of the EFC are yet to be made public. It is not, therefore, possible to make any value judgment on the same except through the remark as above of the union finance minister. Further, even without the recommendations of the EFC, some devolution to the states would have been unavoidable. Thus, it is only the difference between the devolution in the year 1999-2000 and that during the next year that can strictly be considered to be the additional burden and the cause for headache or migraine of the finance minister.

It is unfortunate that there is so much secrecy in all these matters where no taxation proposals are involved. There is no reason why the interim report of the EFC should not have been published soon after its submission. This is particularly so since the report is in pursuance of a mechanism for division of financial resources envisaged by the Constitution. This would have helped better understanding of the recommendations of the EFC as also the budget. The same is true of the Memoranda of Understandings (MOUs) signed by some of the states with the centre to avail of special financial accommodation. There was a time when ‘conditionality’ was a dirty word in the lexicon of the central government. This was particularly so where bilateral and multilateral donors were concerned. Such conditionality was supposed to undermine our national honour and sovereignty. Now conditionality is a fashionable term to be used in the several dealings of the big brother government of India with the subservient states. It signifies the power the centre enjoys over the states. But even after 50 years of democracy and with all the talk of transparency, such discussions are held behind closed doors. People at large have no right to know what state-specific conditionalities have been laid down by the central government and accepted by the states. As a result, information on these MOUs is not shared with the public except for the brief reference to it which appears in the Economic Survey 1999-2000 later referred to in this article. One has to merely rely on the union finance minister once again and take his statement in the budget speech for 2000-2001 at its face value, “While we have gone out of our way to help state governments, the determination shown by some states to deal with these issues has also helped enormously”. It would have helped if the MOUs signed with the states as also the progress of their implementation had been made public from time to time. Construction of ‘information highways’ is as important for the success of economic reforms as is the construction of other conventional infrastructure such as state and national highways. Such opening up ought to form an integral part of the process of economic liberalisation.

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