THE PLANNING COMMISSION & THE FINANCE COMMISSION

Federal political systems provide independent financial control to the central as well as the state governments so that they are able to perform their exclusive functions.94 For the same objective, the Constitution of India has made elaborate provisions,95 i.e., setting up of a Finance Commission to‌

recommend to the President certain measures relating to the distribution of financial resources between the Union and the states. But the powers given to the Finance Commission by the Parliament limited its functions to the extent of finding out revenue gap of the states, besides recommending for the ‘grant- in-aids to the states from the Centre. The finance commission cannot determine the capital-related issues of the states (though the Constitution does not classify between the capital or revenue related roles of the commission while determining the Centre’s assistance to the states).

In the meantime, to promote the process of planning, an extra- constitutional body, i.e., the Planning Commission was set up even before the First Finance Commission was set up. The Planning Commission played a very vital role in the process of determining Central assistance to the states as all development plans, programmes and projects are within its purview. All grants or loans given by the Centre to the states for developmental works are practically dependent on the recommendations of the Planning Commission. And that is why the role of the Planning Commission was said to ‘confine’96 the role of the Finance Commission, i.e., a non-constitutional body eclipsing a constitutional body. P.J. Rajamannar who headed the Finance Commission (1966–69) suggested to clearly define the relative scope and functions of the two commissions by amending the Constitution, and the Planning Commission was advised to be made a statutory body independent of the government. But no such follow ups came from the successive governments at the Centre. But one thing was important, most of the finance commissions devoluted some extra shares in the central taxes (i.e., the income tax and the central excise) and grants-in-aid.

Since the decade of the 1990s, certain events made the Central Government change its mindset regarding the role of the states in the process of development. Major events may be counted as under:

(i) The process of economic reforms started in 1991–92 required active economic participation from the states.

(ii) The constitutional requirement of ‘participatory planning’ mandated by the 73rd and 74th Constitutional Amendments was enacted in 1993.

(iii) The arrival of coalition era at the Centre when over a dozen political parties, having regional affiliations came together to form the

government.

(iv) The recommendations of the Tenth Finance Commission followed by a Constitutional Amendment making Alternative Method of Devolution a law in 1995.

(v) Various new needs of the time, such as, tax reforms, agricultural development, industrial expansion, etc.

The year 2002 could be considered a watershed in the area of promoting the states’ need for financial resources in promoting their developmental requirements. In July 2002, while the government was setting up the Twelfth Finance Commission (2005–10) the then Minister of Finance announced that in future the Planning Commission will be playing more or less a role of collaborator to the Finance Commission. In the same announcement, the government made one member of the Planning Commission, a member of the Finance Commission too (a symbol of physical and ideological connection between the two bodies).97 It was as if the government had accepted the suggestions of the Fourth Finance Commission to a great extent. Though the critics took it as an infringement of a constitutional body by a non- constitutional one, the government clarified by calling it a symbol for promoting the contemporary needs of the economy and fiscal federalism.

Another milestone was created in the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act in 2003, which empowers the state governments to go for market borrowings to fulfil their plan expenditure without prior permission from the Central Government (provided they have enacted their respective Fiscal Responsibility Acts).98 This has boosted the participatory planning in the country by guaranteeing greater autonomous plan participation from the states.

If we look at the tax reforms process, we see a general tendency of enabling the states to collect more and more taxes, the Value Added Tax (VAT) being a glaring example by which almost all states have been able to increase their gross tax revenue receipts. The cause will be served more once the economy goes for the proposed enactment of the Goods and Services Tax (GST).

In January 2015, the NITI Aayog replaced the Planning Commission, thus

the comparison between the latter and the Finance Commission no more exits, but it will always have its academic importance in the area of development planning in the country. Such experiences of the past will function as a directives for the policy makers in the future.

Meanwhile, the new body, the NITI, is totally different in its approach towards fund allocations to the states to promote the cause of development planning. Basically, the states now sit in the NITI itself, in a very strong position. The NITI has been termed by the Central Government as the ‘bestfriend of states in the Centre’.