Union Cabinet Current Affairs - 2019

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5% additional Dearness Allowance approved

Additional installment of Dearness Allowance and Dearness Relief was approved by the Union Cabinet on October 9, 2019. According to the approval, the central government employees are provided with a increase of 5%. Currently it is 12% of the basic pay. Similarly, the Dearness Relief to the pensioners was increased to 5% while its current rate is 12% of the pension.

The increase is being done to compensate the price rise. The increase is based on the recommendations 7th Pay commission

Analysis

The RBI recently has been cutting off the repo rate. It now stands at 5.15% in the last bi – monthly policy review. With this, the inflation is predicted to increase. The increase of the allowances by the cabinet is a precautionary step. The current inflation is around 3% which lies within the boundaries of target inflation set by RBI.

The DA and DR paid to the Central Government employees and pensioners are to adjust the cost of living and to protect their basic pay. Generally, it is revised twice a year.

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.