The Rs 40,000 Crore Meeting

For three days, last week, a series of close door interactions took place around Zabarwan Hills in Srinagar as the 13th Finance Commission team led by Dr Vijay Kelkar visited Srinagar. Its award, expected in October, will give a fair idea about the statutory devolutions to J&K. In view of the significance of the visit Kashmir Life brings out this special supplement.

Omar Abdullah with
Omar Abdullah with Dr Vijay Kelkar.

This week, the most significant meeting for the financial affairs of the state took place at SKICC at Srinagar; the meeting of the Thirteenth Finance Commission of India with the state government.

The Finance Commission, a constitutional body set up once in every five years, decides on how much money should be given to the states from the union kitty over the next five years.

The Commission deals with non-plan expenditure of the state governments and is the only channel through which money flows to the states for financing of their salaries, interest and pensions. These are three largest components of expenditure in any state government.

But the mandate of the Commission goes beyond this.

The money that the Finance Commission gives to state is not only important but also unique. All the resources given by the Commission are the right of the state governments and provided for in the Constitution of India. State governments have given up some rights in the interests of fiscal federalism, like levying of income tax, corporation tax etc. In lieu of that they get a share.

All money from the Finance Commission is an “entitled transfer” unlike that of the Planning Commission. Also, all the money that is given by the finance commission is free in the sense that it is not interest bearing.

There are three types of transfers that the Finance Commission recommends: devolution, deficit grants and equalization or upgradation grants. Devolution is the share that the state gets out of the total tax revenues of the union. Grants are related to the size of the non-plan revenue deficit and upgradation grants are meant to equalize services across all states.

To get an idea of the significance of the Finance Commission transfer, more than 50 per cent of the total transfers from New Delhi to J&K are based on the recommendations of the Finance Commission. Equally important is that much of the plan in J&K gets eaten away by the non-plan gap. So, if the Finance Commission funds the non-plan adequately, the state will be able to have a fully funded plan.

No wonder then that the Chief Minister took it upon himself to not only address the Commission on the priorities of the state but chose to handle all the queries himself to ensure that everything is communicated properly. An impressed Chairman of the Commission, Vijay Kelkar, was all praise for the young Chief Minister’s performance in the meeting. He told one of his Kashmiri friends that, “After discussing with Omar Abdullah the possibilities and priorities, I am convinced this is the only chance J&K has to get moving. All he needs is a better team.”

Omar Abdullah is emerging as the most professional of voices in these meetings. He reportedly handles all the queries on power sector with aplomb.

Besides the formal meetings, it goes to the credit of the Omar that he made sure he met the Chairman and key members of the Commission almost every day at private gatherings besides hosting the customary dinner for them. It is learnt that he left no opportunity to build a personal equation and to give members a realistic ground assessment of the state’s needs.

Also going beyond the state’s need, the members of the Commission said that the Chief Minister had thoughts on what the approach to the Commission ought to be. It is learnt that he said that the Commission should combine “Equity, Efficiency and Equalization” in its criteria for transfer of funds.

The other set of meetings that members of the Commission were quite impressed with was the interest groups like Kashmir Chamber of Commerce and the Federation of Commerce and Industry. They felt that the chambers were quite involved with the development of the state in addition to the growth of business.

The state government seems to have done more than their bit to impress, and impress upon the Commission of the needs and requirements. Now that the good work has been done, and rapports build, some follow up action will be required to deal the deal. At stake are nearly Rs 40,000 crores over the next five years.


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