15th Finance Commission treats J&K as a UT for funds devolution

Syllabus subtopic:

Statutory, regulatory and various quasi-judicial bodies.
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Prelims and Mains focus: Abour J&K Reorganisation Act and issues related; about FFC and its mandate

News: As part of the devolution formula prescribed by the 15th Finance Commission (FFC), Jammu and Kashmir will be treated as a Union territory (UT), despite the Centre’s assurance that this status is temporary and that statehood will be restored “at an appropriate time”.

Procedure for UTs and State receiving grants?

The commission had sought legal opinion from experts before deciding that the Union Territory of J&K will receive grants from the home ministry from the Centre’s share of funds. States’ share of the money comes directly from the consolidated fund of India.

What J&K Reorganisation Act says about grants?

The J&K Reorganisation Act passed by Parliament says the President shall make a reference to the FFC to “include Union territory of Jammu and Kashmir in its terms of reference and make award for the successor Union territory of Jammu and Kashmir”.
The centre’s assurance of restoring J&K’s status as a state had led to the impression that an exception will be made by the FFC for J&K, which would continue to receive its share of taxes like any other state.
Constitutionally, there will be an infirmity on non-states getting share of net proceeds of taxes which are admissible only to states.

Way ahead

The formation of J&K and Ladakh as UTs will have significant implications for the vertical and horizontal dimensions of fiscal transfers.
However, whether the tax devolution to individual states will increase or decline after total number of states decreased from 29 to 28 will depend on the devolution formula adopted by the finance commission.

15^th Finance Commission

Last month, the Union Cabinet extended the tenure of the finance commission by another year.
The FFC submitted its first report for 2020-21 to the President earlier this month, and is expected to submit its second and final report for the reward period 2021-22 to 2025-26 by 30 October.
The government is expected to release the first report of the FFC just before the Budget presentation on 1 February. The extension of the term will enable the commission to examine various comparable estimates for financial projections in view of the reforms and the new realities to finalise its recommendations for 2020-26.

Source: mint

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