The Economic Advisory Council of the 15th Finance Commission has suggested a nuanced approach towards tax devolution to States. The Commission is finalising its report for a five-year period starting 2021-22 which will suggest the kind of share the States will have in Central taxes.

“The Advisory Council felt that the Finance Commission is faced with an unprecedented situation of uncertainties and will have to take a nuanced approach towards tax devolution to the States, other transfers, financing of expenditures in the midst of revenue strains including through borrowings and the path of fiscal consolidation,” a statement issued by the Finance Commission on Friday, after the meeting of the Council, said. The meeting was attended by full commission while from the council, Arvind Virmani, Indira Rajaraman, DK Srivastava, M Govinda Rao, Sudipto Mundle, Omkar Goswami, Krishnamurthy Subramanian, Pranob Sen and Shankar Acharya shared their views.

The Members of the Council also felt that the Commission will have to think unconventionally, especially in treating the five years at hand from 2021-22 to 2025-26. They advised that the base year 2020-21 and the first year of 2021-22 may need to be viewed differently from the remaining four years when the revenue situation is likely to improve gradually.

Different views were expressed on the GDP growth in the current year in terms of the quarterly built-up, and the growth revival that is likely in the subsequent years. The Advisory Council felt that the general government debt relative to GDP is likely to increase steeply in the initial years, however, the purpose should be to bring it down in the subsequent years, the statement said.

Later, addressing the media, NK Singh, Chairman of the Commission, said there were views to revisit fiscal consolidation roadmap, particularly general government debt to GDP target. “Study says that debt to GDP may be way upwards of what it has historically been. And it will be daunting challenge to bring it to (the level) the FRBM committee had projected. Now consolidated debt to GDP 82-83 per cent and if there are further shortfalls in revenue and increase in expenditure,” he said.

Considering the uncertainty, he felt that there was merit at looking at a range than a number for fiscal deficit. “Having a range will be in congruity with what you have in monetary policy with 4 per cent with two percent moment in either direction and that we could, no doubt, while giving fiscal number say that the central number is this, and it will be more realistic,” he said while clarifying that no decision has been taken in this regard.

Related Topics
comment COMMENT NOW