|dc.contributor.author||Kannan, K. P.||
|dc.identifier.citation||Kannan, K.P. & R. Mohan (2003) India's twelfth finance commission : a view from Kerala. CDS working papers, no.354. Trivandrum: CDS.||en_GB
|dc.description.abstract||The focus of the paper is to review the Terms of Reference (TOR)
of the Twelfth Finance Commission with special reference to Kerala.
It also critically examines the emphasis on fiscal deficit reduction without
paying attention to its quality and finds that this has led to the Centre
and the States resorting to a softer option of cutting productive capital
and necessary maintenance and social sector expenditure. This is likely
to have adverse consequences on equitable growth and to impede the
process of relieving the economy of structural constraints on growth.
There is an urgent need for analysing the quality of fiscal consolidation
instead of focusing merely on quantity of reduction of deficits as a
proportion of Gross Domestic Product (GDP). The study hence suggests
incorporating the concept of Quality of Fiscal Discipline.
It is found that there has been an enlargement of the scope of
Finance Commissions [since the Eleventh Finance Commission (11th
FC)] into mandates for recommending mechanisms for achieving
macroeconomic balance, equitable growth, and suggestions for
disinvestments and privatisation, while its role in the traditional area of
grant devolution has been restricted to non-Plan grants only. In fact, the
enlargement of the role in the traditional area of grant devolution would
be more desirable.
There is sufficient scope for augmenting resource mobilisation
from direct and indirect taxes at the Central level. Emphasis is to be
placed on integrating services and manufacturing into a single CENVAT
(Central Value Added Tax) and on direct taxes reform. The second
generation tax reform should concentrate on States’ tax administration
and inter-State coordination prior to moving on to a State level VAT.
There is need for a constitutional amendment to place service tataxation
in the Concurrent List and enable States to tax more services. On the expenditure side, steep increases in items like wages and
salaries and interest expenditure are unlikely in the near future.
Hence maintenance and social sector expenditure should not be
sacrificed. At the same time, efficiency in spending and cutting
unproductive expenditure and leakages should be strictly monitored. A
decentralised district level monitoring system for maintenance
expenditure of capital assets is also suggested. The paper argues that
bringing privatisation in the Terms of Reference of the Finance
Commission seems avoidable. It is also felt that more effective time
bound implementation of State Finance Commission Reports is needed.
Along with devolution of funds, transfer of administrative functions is
necessary for avoiding duplication of expenditure.
As for Kerala-specific issues, it is found that achievements on the
human development front are not rewarded. Certain changes in the
existing criteria (of the Eleventh Finance Commission) are hence
suggested. Kerala’s tax effort, though better than richer States like Punjab,
is facing structural constraints. The fast expanding services sector is
outside the tax net of the State. The tax-GDP ratio of Kerala showed a
mild decline at 9.84 percent in the 1990s as compared to 10.29 percent
in the 1980s despite a much higher growth rate of State Domestic Product,
mainly because the State was not able to tax the dominant sector of the
State Domestic Product, that is, the services sector.
Key words : finance commission, fiscal deficit, revenue mobilisation,
JEL Classification : H77, H60, H20||en_GB
|dc.publisher||Centre for Development Studies||en_GB
|dc.relation.ispartofseries||CDS working papers;354||
|dc.title||India's twelfth finance commission : a view from Kerala||en_GB
|dc.type||Series paper (non-IDS)||en_GB
|dc.rights.holder||Centre for Development Studies||en_GB