On Tuesday, the Sixteenth Finance Commission made a significant move by constituting a five-member advisory council, aiming to enhance its operations and ensure more informed decision-making. The formation of this advisory body marks a crucial step in the Commission’s efforts to effectively address its Terms of Reference (ToR) and related subjects, according to a press statement issued by the Commission.
Key members of the advisory council
Poonam Gupta, the Director General of the National Council of Applied Economic Research (NCAER), has been appointed as the convenor of the Advisory Council. Gupta’s extensive background in economic research and policy analysis is expected to provide valuable leadership and direction to the council.
The advisory council also includes four other distinguished economists:
- D.K. Srivastava: Chief Policy Advisor at EY. Srivastava’s expertise in economic policy and fiscal matters will be instrumental in guiding the Commission’s understanding of complex economic issues.
- Neelkanth Mishra: Chief Economist at Axis Bank. Mishra’s insights into economic trends and banking will offer a practical perspective on fiscal policies and their impact on the financial sector.
- Pranjul Bhandari: Chief India Economist at HSBC Securities & Capital Markets. Bhandari’s experience in analyzing Indian economic conditions and capital markets will support the Commission in evaluating market dynamics.
- Rahul Bajoria: Managing Director & Head of EM Asia (ex-China) Economics at Barclays. Bajoria’s focus on emerging markets will help the Council understand global economic trends and their implications for India.
Roles and functions of the advisory council
The advisory council’s primary role will be to assist the Sixteenth Finance Commission in several critical areas. The council will be involved in:
- Preparation of Papers and Research Studies: The council will contribute to the development of comprehensive research studies and policy papers, providing in-depth analysis and recommendations on fiscal matters.
- Monitoring and Assessing Studies: The advisory council will oversee and evaluate studies commissioned by the Finance Commission. This oversight will ensure that the studies are thorough and that the findings are effectively integrated into the Commission’s work.
- Enhancing Understanding of Terms of Reference: The council will work to deepen the Commission’s understanding of its ToR, which includes complex topics such as fiscal devolution, tax distribution, and state finances.
- Broadening Scope and Understanding: By researching national and international best practices, the advisory council aims to expand the Commission’s perspective and improve the quality and effectiveness of its recommendations.
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Terms of reference (ToR) of the sixteenth finance commission
The Sixteenth Finance Commission, established by the Indian Constitution, has been tasked with several important responsibilities. Among the ToR approved by the Cabinet are:
- Distribution of Tax Proceeds: The Commission will review and recommend how net tax proceeds should be shared between the Union and state governments. This involves determining the allocation of federal taxes among states and local bodies.
- Grants-in-Aid Principles: The Commission will suggest principles governing the grants-in-aid from the Consolidated Fund of India to states. This includes evaluating the amounts to be allocated as grants to support state revenues.
- Augmentation of State Resources: The Finance Commission will propose measures to augment the Consolidated Fund of a State, aiming to enhance the resources available to panchayats and municipalities.
Role of the finance commission
The Finance Commission is a constitutionally mandated body established every five years to formulate a formula for distributing net tax proceeds between the Centre, states, and local bodies. The Fifteenth Finance Commission, the previous panel, recommended that states receive 41% of federal taxes, a provision that continues to influence fiscal allocations.
The establishment of the advisory council is expected to provide the Sixteenth Finance Commission with robust analytical support and strategic guidance. This move underscores the Commission’s commitment to making well-informed decisions that will shape the fiscal landscape of India in the coming years.
