We will look at urban local bodies' suggestion for devolution of funds: N K Singh

The 15th Finance Commission will be examining the appropriateness of the expenditures projected by the state governments before deciding on the devolution of central taxes, said chairman N K Singh in an interview with Anjul Tomar.

Governments tend to spend more on populist sops during elections. This tends to breach their fiscal deficit target. How do you see this?

What constitutes populist expenditure is debatable. What you may consider populist, some other states may consider essential. Mid-day meal is one example. Tamil Nadu government told us that mid-day meal, viewed as populist, helped in school attendance and improving nutritional standards, and later became a national scheme. The other version, of course, is the distinction between what are capital-creating assets and those which are purely for consumption. The whole issue of what constitutes populist expenditure is something on which more thinking needs to be done because let's not forget that each of these state governments are elected and have legislatures which are accountable to the people. Therefore, we can't circumscribe the functions constitutionally assigned to the state assemblies and the state governments. But within the framework of that, while examining the appropriateness of some expenditures projected by the state governments, we are certainly entitled to look into the merit of various state governments' proposals and various expenditures on areas, particularly those that contribute to long-term growth and long-term social objectives.

South Indian states say they are being penalised for the decline in population growth during the allocation of resources?

There is no objective of Finance Commission to punish any state for good performance. Some states, which have achieved significant success in demographic management, have said this goes against them because their population has come down. Therefore, their plea is that instead of using the 2011 census, the earlier census (1971) should be used, which was the practice before. We are bound by the terms of reference which specify that we should use the population figures of the 2011 census. But there is a separate item which says that we can consider incentivising states which have achieved better demographic management. We haven't decided on whether to use population, and if so, what weightage we should assign to population; and having assigned weightage, in what manner we will address the terms of reference in relation to incentivising demographic management.

Is there any other way you would like to compensate the states?

Successive finance commissions have assigned weightage to what may be called backwardness to address this issue of the states which may have not made so much of progress and may have been left out of the mainstream. This is certainly one of the issues that the commission will be addressing. We haven't decided on what would be the methodology we will deploy and what is the weightage we will assign to the equalisation or the backwardness or the convergence formula on that. But certainly, we will need to address that particular reference that talks about need for convergence.

What will be the road map for devolution of funds to the urban local bodies?

Urban local bodies are currently dependent on the states. The last Finance Commission only gave money to the panchayats, therefore leaving the first and the second tier entirely to the state government. It was, however, assumed that out of the increased 42% devolution of funds to the states, the commission would be in a position to give the money to the urban local bodies. In many of the states we visited, the urban local bodies have asked us to reconsider the decision of the 14th Finance Commission and also have a look at other two tiers - urban local bodies and municipalities - while giving money to the panchayats. We will certainly examine this.

When is the report of Finance Commission likely to be final?

According to the terms of reference, we have been asked to submit the report by the end of October 2019. It is our intention to adhere to the timeline prescribed. We recognise that without this report there would be difficulties in the presentation of the Budget 2020, both at the central and the state levels. State governments will also be left with a degree of uncertainty on the kind of resources which are available. The commission would like to adhere to the timeframe prescribed in the reference.

You have been a part of the government for so long. Has such a face-off between the Reserve Bank of India (RBI) and the government ever happened?

Earlier also there have been differences in perceptions and perspectives. They have invariably been settled through mutual process and consultations, which I think is the appropriate course forward. I don't think there are two parties. I think there is only one party. I think these issues are best resolved by discussions between the RBI and the central government.