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

Thirteenth Finance CommissionSubscribe to Thirteenth Finance Commission

Vertical Sharing and Horizontal Distribution of Resources: The Equity and Efficiency Trade-off

Examining the key recommendations of the Thirteenth Finance Commission that have a bearing on vertical and horizontal transfers aimed at correcting imbalances in the system, this paper takes a critical look at these two aspects as well as the grants given to states. It also reviews the overall design of transfers by decomposing these to identify their vertical and equalising content, pointing to problems that could arise in the long run. Yet it concedes that despite several drawbacks, the commission has arrived at a mechanism for transfers that includes some desirable features.

Report of the 13th Finance Commission: Introduction and Overview

This special issue on the Report of the Thirteenth Finance Commission has eight experts evaluating its recommendations from different perspectives. While acknowledging the many plus points of the report, the writers also draw attention to its numerous drawbacks, ranging from a lack of proper attention and omissions to faulty logic. There is little doubt that some of the recommendations, if implemented in the right spirit, will benefit the management of public finances in the country. However, an awareness of the report's limitations could serve as an antidote to not slipping up again.

Deficit Fundamentalism vs Fiscal Federalism: Implications of 13th Finance Commission's Recommendations

The Thirteenth Finance Commission's recommendation to increase the vertical share of tax devolution to states will help, but its horizontal distribution formula leaves much to be desired. One, its design is such that two of the four key indicators are in conflict with each other. Two, the commission's revised road map for fiscal consolidation at the centre and the states, which recommends state-specific, year-wise, fiscal adjustment paths, not only limits the fiscal manoeuvrability of states but also impinges on their fiscal autonomy. Three, its design of the grant for elementary education has the potential to reduce the expenditure of states rather than augment it. The need to look at intergovernmental transfers from the right perspective of federalism, where the states and the centre are seen as equal partners in development and not from a narrow technocratic viewpoint, cannot be stressed more.

Goods and Services Tax: The 13th Finance Commission and the Way Forward

The Thirteenth Finance Commission was required to look into the revenue impact of the introduction of the goods and services tax. Its report, based on the recommendations of a task force constituted to study the issue, recommends a highly uniform and centralised format that does not adequately recognise a tax reform exercise in a multi-level fiscal system that involves compromises and trade-offs. While several flaws can be pointed out in its design, developments that have taken place before and since the report was submitted have to a large extent rendered the commission's recommendations irrelevant. All this underlines the need for a model that goes beyond uniform rates of tax and allows states to vary beyond a floor, with a fixed classification of commodities and services, so that they can choose an appropriate rate to ensure that their revenue requirements are met.
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