Speaking at the Policy Talk series hosted by IIMBangalore students, NK Singh, Chairman, 15th Finance Commission (FC), shared his insights on the topic ‘Impact of pandemic on Fiscal Architecture — Fiscal Federalism in the near future.’
Addressing the PGPPM students at IIMB, the renowned academician, bureaucrat and policymaker, said, “I immensely value this opportunity to engage with IIMB students at such an inflection point in our fiscal polity. None of us has any memory of the Spanish flu or the Bubonic plague that affected several parts of the world. This is the first, full-blown, pandemic that we are witnessing, which has impacted various aspects of life. Fiscal architecture needs the reset button, too.”
Singh was Chairman of the Fiscal Responsibility and Budget Management Review Committee (FRBM) before he took charge at 15th FC. He also served as a member of the Rajya Sabha from 2008 to 2014, during which time he contributed to several prominent parliamentary standing committees. Singh has enjoyed a long and distinguished career before his entry into politics and fiscal policy leadership.
Evolution of fiscal federal architecture
In the first part of his lecture, Singh dealt with the subject of evolution of fiscal federal architecture in India, while in the second, he described the current challenges in the area.
Discussing the genesis of fiscal federalism, he traced it back to the Government of India Act 1919 and the Government of India Act 1935. The former provides for a separation of revenue heads between the Centre and the provinces, while the latter provides for sharing of revenues and establishes the basic structure of fiscal federalism in India. He explained the dichotomy between “the use and the misuse” of Article 282 — implying that it doesn’t matter if a subject is in first, second or third list, grants may be given under Article 282, superseding all the lists.
“There are 211 schemes and 29 sub-schemes that are Centrally sponsored under this provision. They add up to nearly ₹6-7 lakh lakh crore. And schemes such as ‘Ayushman Bharat’ continue to grow,” he said. Adding to that, according to him, the vision that prompted our forefathers to make a clear demarcation between subjects stands substantially modified.
Contemporary challenges
“The strata of the Centrally-sponsored schemes does spread across a wide canvas, making the distinction highly opaque. This constitutes a dichotomy and creates tension.”
He declared that unless the clutter and opaqueness in the application of Article 282 and the seventh schedule of the Constitution is cleaned up, fiscal architecture would continue to remain clumsy and ill-designed to meet contemporary challenges, including changing electoral politics, people’s aspirations, and obligations of national leaders, as well as, technological advancements.
Resetting the federal context in times of the pandemic
“The management of this pandemic is in keeping with these Acts — Disaster Management Act of 2005 and the Epidemic Diseases Act. These Acts belong to a different time and this is causing a lot of confusion.”
Pointing to India’s record, which has been far more credible in handling the dynamics of Centre-State responses in pandemic management, compared to countries such as the United States, he said: “Our record and practice has been more credible than, say, that of the Governor of New York, who is constantly complaining about the responses of the American President!”
In the context of revenue, this is the time for fiscal norms to be suitably relaxed. “States need more room to meet additional obligations caused by the pandemic,” he added.
In concluding observations, he said there are issues of the short term and the long term. “In the long term, we must address issues that are germane — look into the seventh schedule keeping in mind today’s compulsions. In the short run, let us deal with the clutter of the Disaster Management Act and Epidemic Diseases Act.”