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Wednesday, Sep 17, 2008
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Change resource transfer system: Isaac

Special Correspondent

Says Centre is unilaterally setting terms of reference of Finance Commissions

NEW DELHI: Kerala Finance Minister T.M. Thomas Isaac has sought correction in the system of transfer of financial resources from the Centre to the State through various channels outside the statutory transfers recommended by the Finance Commissions.

“Many of these transfers are not only discretionary but are directly going to district authorities and societies bypassing the State budgets.”

Addressing a meeting of State Finance Ministers with the 13th Finance Commission here on Tuesday, he said the country’s resources transfer system, which had various deficiencies, required correction not through heavy reliance on tied and conditional grants but through an alternative approach, which accommodated and protected the objectives of equity, efficiency and autonomy of the recipient State governments.

The basic constitutional foundation of having an Finance Commission was diluted not only due to the multiplicity of transfers through alternative channels but also due to the way the terms of reference of successive Finance Commissions had been framed including that of the 13th one.

Dr. Isaac decried the Centre for unilaterally setting the terms of reference of the Finance Commissions.

Fiscal policy

The Minister pointed out that multilateral and bilateral lending institutions were also entering in a big way in determining the State-level fiscal policy through various sectoral and structural adjustment lending linked to fiscal reforms. Reform era also had seen a big push for rule-based fiscal control at the State-level at the instance of 12th Finance Commission.

“These changes in intergovernmental fiscal transfers have made the system complex and States are increasingly finding it difficult to pursue an independent State-level fiscal policy,” the Minister said.

Dr. Isaac asked the 13th Finance Commission to take a fresh look at linking transfers to fiscal performance of the States in the context of evolving intergovernmental fiscal relations in the country.

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