Thursday, February 10, 2011

Pranab Mukherjee’s finance commission blues

Finance minister Pranab Mukherjee found time from his busy pre-Budget schedule to release the book, ‘Federalism And Fiscal Transfers In India’, (OUP) written by C.Rangarajan, who heads the prime minister’s economic advisory council, along with D.K.Shrivastava on February 9. The subject of the book – of transferring money to the states from the central tax pool – is both a pressing one as well as complicated.

The finance minister admitted as much when he said that one of the difficulties of going ahead with the Goods and Services Tax (GST), the uniform tax across the country, was that of the many responsibilities that the state governments and how they are to fufill them.


Drawing a parallel from the Constitution, he said that the defining feature of the constitution which is federal in structure but unitary in bias cannot be wished away. He reminded that unlike the federal systems in Australia and Canada evolved differently, and that the Indian system was more closely aligned to the British unitary system, where the central government is all and local governments do not have the same responsibilities or capabilities.


He implied that the central government will remain the key player in managing the economy both vertically – between the centre and the state – as well as horizontally – distributing the tax pool among the states. And that the scope of GST will remain largely in the hands of the central government and that this cannot be abandoned.

Mukherjee confessed that when he was finance minister in the early 1980s, he did have problems with the recommendations of the eigth finance commission, and that he referred to the constituent assembly debates to find ways of not implementing the commission’s recommendations.

Referring to the book, which is based on the work of the 12th Finance Commission headed by Rangarajan and had co-author Shrivastava as a member, he said that if this report was presented in the 1950s and 1960s, it would have given a heart attack to the finance minister.

He concluded on the positive note that the constitutional system in India is still evolving. He said that for good governance there is need for good institutions.

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