Suggesting better measures for the devolution of funds to states, NITI Aayog Vice Chairman Rajiv Kumar has pointed out the need for building ‘performance indicators’. He said that devolution of funds criteria has to include some performance based criteria and therefore those states which have done better in certain performance should not be punished. His statement came in the backdrop of some states expressing disquiet about the Terms of Reference of the 15th Finance Commission to decide the sharing of tax resources between the Centre and states.
Kumar pointed out that fiscal irresponsibility is bad but fiscal fetish is also not good and a balance must be maintained. He highlighted that the country is entering a new era of much larger fiscal space because of the Goods and Services Tax (GST) and buoyancy in direct tax collection. He also urged to the industry body to come up with new formula for enhancing growth and added that macro-economic policy in India needs to be counter-cyclical. He said that while the Fiscal Responsibility and Budget Management Act did have a role to play in discouraging short-term populist measures and promoted fiscal discipline, there was also no need to be concerned about borrowing that finances long term capital expenditure. He also pointed out that certain expenditures such as those for health and education could be viewed as capital expenditure as they promote productivity gains in the long run.
Besides, Rajiv Kumar added that NITI Aayog was in favour of recommending to the 15th Finance Commission to consider Sustainable Development Goals (SDG) performance for allocating a small percentage of funds to different states. But unfortunately they found that if the government uses SDG performance criteria for funds devolution to the states, then it is the more backward states or populated states that will lose some of their allocations and that would be politically harmful.