- The GST Council was designed as a federal body between the States and the Centre in the matters of taxation.
- But because of the delay in the dues which are to be paid to the
statesthey have been complaining that the Centre is taking advantage of the arrangement.
Concern of the states:
- The Centre is supposed to give money to the States, but that distribution is taking time and accounts are not being finalised.
- There is a feeling that the Centre is trying to keep the money longer than required.
- The Finance Commission (FC) awards are more in favour of the poorer States but the empirical evidence showed that there is discretionary spending allowed by the Centre and in
factit is only been to the benefit of the richer States.
- The non-FC expenditures actually don’t go to poorer States, they are regressive. This is a matter of concern to many states.
- According to Y.V. Reddy, former chairman of the Fourteenth Finance Commission, there is a belief that leaving expenditure to the Centre’s discretion, instead of the FC, would lead to spending on the backward States. But the reality is the opposite.
- The explanation is possible that political bargaining is better for the forward States, or their absorption capacity is better.
Restructuring NITI Aayog:
Mr.Reddy pointed that on the future roles of the FCsand the NITI Aayog, there was a need for a body such as the FCs to make sure that there was a stable formula for transfers to the States.
- There is also a need for a federal body, which is trusted by both the States and the Centre that would provide a forum for the political bargaining which handles the allocation of other funds to the States, such as grants in aid.
- It should have political forum and expertise also, which will decide the criteria for such transfers.
- This body should be trusted by the states and needs to come under the confidence of both the States and the Centre.
- It should not just identify with just Centre.
- He also stressed on the importance of Term of reference used by the Finance Commission.
- It should use the latest population data available along with other factors that would reward the efficiency of the States.
- The question should be to reward Efficiency or Equity, and how to balance between these two, since if it is done both they would cancel out each other.
Source: The Hindu