Video Summary

[RSTV The Big Picture] Economy: Public Spending Council

Various suggestions have been made to curb the decline in economic activity that has lasted more than a few months including creating Public Spending Council on the lines of GST Council.
By IT's Video Summary Team
August 29, 2019

Contents

  • Introduction
  • Background
  • Arguments against Public Spending Council
  • Arguments in favor of Public Spending Council
  • Suggestions
  • Conclusion

[RSTV The Big Picture] Economy: Public Spending Council

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Introduction

  • The Economic Advisory Council to the Prime Minister (EAC-PM) has recommended a GST Council-like mechanism for the Centre and states to oversee public expenditure.
  • Pointing out the success of the GST Council body for decisions about indirect taxes, the Economic Advisory Council Chairman Bibek Debroy said that in order to increase the efficiency of the overall public expenditure, there needs to be a decision-making body that would keep a check on the expenditure.
  • He also mentioned that there are fiscal consolidation issues that limit gains on public expenditure, but a strategic expenditure by governments could yield efficiency gains.

Background

  • Till January 2015, while the planning commission was in place, the role of the planning commission was to represent the interests of the state to the finance ministry (which allocate funds on state as well central schemes)
  • Then, planning commission negotiate with the finance ministry as per the pragmatic terms of a state such as how much fund a state need, how it should be allocated etc.
  • However, post 2015, after the creation of NITI Aayog, the entire role of planning commission was taken by the finance ministry alone. NITI Aayog, to some extent, visited the state for negotiations but failed to replace planning commission.
  • Currently, there are nearly 300 central sector schemes while nearly 30 are central sponsored schemes. The suggestion of former member of NITI Aayog, Bibek Debroy, was to solve the problem of funds and resources allocated to these central sector/sponsored schemes by creating a Public Spending Council similar to the current GST council.

Arguments against Public Spending Council

  • The constitution was amended while making GST council, which took 15 years to build. Hence, creating Public Spending Council similar to GST council will be cumbersome process.
  • The expenditure is different matter than raising revenue. In raising revenue, the GST council, with 33 members, compromises one minister from each state. However, for expenditure, there are nearly 20-30 ministers in each state. Hence, it is impossible to construct a council, similar to GST, on expenditure compromising of all ministers from all states (nearly 500).
  • The expenditure is an everyday matter and it’s on the ground situation that one needs to solve the problems such as problems of land acquisition, delays, not being able to formulate a proper scheme etc. Hence, Body similar to GST council will only work from Delhi (as GST council take decision from Delhi) without seeing the ground realities.
  • In GST council, in order to pass a resolution, it has to supported by at least 75 percent majority of the votes of the members, in which state and center both votes. Hence, states cannot pass a decision unilaterally among themselves. So, body similar to GST council is not a good option for public expenditure council as states unilaterally cannot make decisions.

Arguments in favor of Public Spending Council

  • GST council has proved to be successful body in which most contentious issues are resolve with consent. GST council is not only federal but accommodate the views of other stakeholders. Hence, Public Spending Council can be made on the lines of GST Council.
  • Currently, the expenditure finance committee of finance ministry is deciding about which state will get how much fund, in a manner not welcomed by the states. Hence, there is a need for Public Spending Council because planning commission cannot be replaced by the few members of expenditure finance committee.
  • By 2020 March, most of the schemes, started after the removal of Planning commission in 2016, will be expired. Moreover, the formal deadline of the 12th five-year plan was March 2017. However, many of the schemes of this five-year plan still continue and there is a fear that these scheme might continue beyond 2020 without being given enough funding.
  • Hence, public spending council will prepare center and states to facilitate a smoother spending mechanism.
  • There is a question raised that there will be prioritization issues such as which schemes needs to be executed first in public spending council. However, GST council, with representative from each state, managed to consolidate 17 various taxes with consensus.
  • By copying the GST council in formation of public spending council, one can take the advantage of fast decisions making process of GST council.

Suggestion

  • A body like NITI Aayog or center-state expenditure commission can give directives showing the prioritization for the expenditure. The central government has to come to the state and meet ministers and check why expenditure is not taking place or why it is not efficiently used.
  • The Public spending council can be made similar to GST council, chaired by finance ministers, and have representative from each state/UT. In this council, each state can discuss about various central sector/sponsored schemes over period of a week or 15 days’ basis.
  • There should be a proper voting mechanism in case of Public spending council wherein the state has more than equal share.
  • For the items in concurrent list such as education, agriculture, healthcare, irrigation etc., the central government formulates schemes after the consultation with state government. Here, instead of public spending council, there is a need for a specific ministry wise council so that center can formulate schemes in tandem with state government needs.
  • It is not necessary to replicate whole GST council in which decisions are made in a single meeting, instead, each state can discuss with public spending council separately over a period of time. Moreover, through this mechanism, state and center can discuss about which scheme will be more useful in which state.
  • Moreover, there should be decentralized and local approach in addressing a state’s needs and concerns. In other words, a single state specific decisions should be taken in the respective state and not only in Delhi.

Conclusion

  • There should be a comprehensive talk between NITI Aayog, Finance ministry and State governments on various central sectoral/sponsored schemes.
  • There should be separate ministerial level consultations for different states as requirements of different states are different.
  • It is the need of the hour to establish Public Spending Council similar to GST council, but with consent and equal participation of all states.

 

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