Terms of Reference Current Affairs - 2019

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Cabinet approves extension of term of 15th Finance Commission

Union Cabinet chaired by Prime Minister Narendra Modi has approved extension of term of 15th Finance Commission (XV-FC) up to 30 November 2019. This will enable FC to examine various comparable estimates for financial projections in view of reforms as well as new realities to finalise its recommendations for period 2020-2025.

The government has also broadened ambit of FC’s recommendation to include funds for defence and internal security.

Key Highlights

Background: 15th Finance Commission has been constituted by President on 27 November 2017 in pursuance of clause (1) of Article 280 of Constitution of India and Finance Commission (Miscellaneous Provisions) Act, 1951. FC was to submit its Report on basis of its Terms of Reference (ToR) by 30 October 2019, covering a period of 5 years commencing from 1 April 2020.

Reason for Extension:

The constitution of 15th FC has been in backdrop of various major fiscal and budgetary reforms introduced by Union Government in past 4 years such as closure of Planning Commission (PC) and its replacement by NITl Aayog (National Institution for Transforming India), removal of distinction between Non-Plan and Plan expenditure, advancing budget calendar by 1 month and passing of full budget before commencement of new financial year i.e. on 1 February, introduction of Goods and Services Tax (GST) from July 2017 and New Fiscal Responsibility and Budget Management (FRBM) architecture with debt and fiscal deficit path.

ToR of FC takes into account above fiscal and budgetary reforms. The task of determining expenditure and receipts of Union and State governments based on which FC shall make its recommendations is time consuming, as checks for data consistency across time and data sets become challenging.

About Finance Commission

FC is constituted by President under Article 280 of Constitution of India. It is constituted to give recommendations on distribution of tax revenues between Union and the States and amongst States themselves.

XV FC:

It was constituted by Presidential Order on November 2017 under the Chairmanship of N. K. Singh.

It will decide formula for devolution of revenue/funds between Centre and States, for a 5 year period– April 2020 to March 2025.

Chief Economic Advisor Krishnamurthy Subramanian appointed as Advisory Council Member in 15th Finance Commission

The Chief Economic Advisor (CEA) to Central government, Dr. Krishnamurthy Subramanian is appointed as twelfth (12) member of Advisory Council of Fifteenth (15th) Finance Commission (FCc).

Advisory Council

It now has 12 members, which include noted economists Surjit Bhalla, Arvind Virmani, Indira Rajaraman and M Govinda Rao among others.

Role and Function:

  • To is to advise FC on any relevant matter or subject related to Terms of Reference (ToR) of Commission.
  • To assists FC in preparing any research paper or study which would enhance commission’s understanding on issue contained in its ToR.
  • To help expand FC understanding in adopting best national and international practices on matters of fiscal devolution and
  • To help improve quality, reach and enforcement of FC recommendations.

Finance Commission

  • It is constituted under article 280 of Constitution by President of India. It mainly gives its recommendations on tax devolution i.e. distribution of tax revenues between Union and States and amongst states themselves.
  • It is appointed for a period of five years and comprise of five member including one chairman and four other members.
  • First FC was constituted under chairmanship of Shri K.C. Neogy on 6th April, 1952.

Fifteenth Finance Commission

  • It was constituted in November 2017, to give recommendations for tax devolution and other fiscal matter for five fiscal years, 1 April 2020- 31 March 2025.
  • It is chaired by N. K. Singh, and members Ajay Narayan Jha, Ashok Lahiri and Anoop Singh. Ramesh Chand is a part-time member in FC.