ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Federal Finance : Tampering with Basic Structure

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Not even the most trenchant critics of the additional term of reference (ATOR) handed by government of India to the Eleventh Finance Commission (EFC) could have imagined the sort of fiscal mechanism the states have been landed with by the EFC majority (the exception being Amaresh Bagchi whose strong difference with the majority on the issue is recorded in his note of dissent). The EFC majority’s agenda is much broader than that of the authors of the ATOR, viz, the ministry of finance, which regarded the ATOR “as only procedural in nature aimed at linking release of grants to states to cover the assessed deficit in their non-plan revenue account”. The EFC majority has taken the stand that the ministry’s interpretation of the ATOR is “rather narrow” since “it does not take into account the imperatives of reform not only for the states which have been assessed deficit on non-plan revenue account but also for those states which have revenue deficit which have not been recommended any grants because of the normative approach adopted by us”.

The EFC’s agenda evidently was to set up an institutional framework that would become permanent and would not be linked to a state’s assessed deficit on non-plan revenue account. In the EFC’s scheme even the other states are brought under the umbrella of the proposed institutional framework by offering them a bait in the form of a share of the proposed incentive fund. It is notable that the finance ministry was not asking for either a permanent institutional framework to design state-specific monitorable fiscal reform programmes for states assessed as deficit on non-plan revenue account or the coverage of all states including those assessed as non-deficit.

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