Brain Booster for UPSC & State PCS Examination (Topic: Reconsider the Seventh Schedule)

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Topic: Reconsider the Seventh Schedule

Reconsider the Seventh Schedule

Why in News?

Fifteenth Finance Commission (FFC) Chairman NK Singh, suggested that the government should set up committees to revisit the Seventh Schedule and Article 282 of the Indian Constitution.
The final report of the 15th Finance Commission (2021-26) is now public.

Background

There is a need to recognise the contemporary context of technology, global interdependence and changes in our national priorities. These necessitate a revisit to the traditional classification of subjects embedded in the Seventh Schedule of the Constitution.
The Seventh Schedule of the Constitution divides subjects broadly into the Union, State, and Concurrent list.
The legitimacy of all centrally sponsored schemes, most of which are in the domain of the states, emanates from the use or misuse of Article 282 of the Indian Constitution.
Article 282 of the Indian Constitution deals with expenditure defrayable by the Centre or a state out of its revenues. The article says the Centre or states may make any grants for any public purpose, notwithstanding that the purpose is not one with respect to which Parliament or the Legislature of the State, as the case may be, may make laws.
Centrally sponsored schemes are paid for by the Centre and states in a pre-determined ratio, while central sector schemes are entirely financed by the Centre.

Need for Reconsideration

Over a period of time the division of functions got increasingly eroded.
The first reason perhaps would be the constitution of the Planning Commission in 1951.
Another reason is the shifting of the subjects like forest and education from the State to the Concurrent list by the 42nd Amendment of the Constitution, which significantly changed the dynamics.
Some examples in today’s context are the Mahatma Gandhi National Rural Employment Guarantee Act of 2005, the Right of Children to Free and the National Food Security Act, 2013.
Over time, the Union has transgressed into subjects assigned to states for various reasons, including the fact some of these are national priorities and the Centre has obligations going beyond the Schedule.
The symmetry in the working of the Goods and Services Tax (GST) Council and the Finance Commission deserves serious considerations.

Issues Related to Centrally Sponsored Schemes

There are 211 sub-schemes under the 29 centrally sponsored schemes. Considering that the states often protest that these schemes are ill designed and not suited to their specific needs and entail significant financial outlays by them, no state has really decided to abandon them.
There is a need for rationalisation of centrally sponsored schemes by revisiting Article 282 of the Indian constitution to make them flexible enough to allow States to adapt and innovate.

15th Finance Commission

The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations. The 15th Finance Commission was required to submit two reports.

Key Recommendations:

The share of states in the centre’s taxes is recommended to be decreased from 42% during the 2015-20 period to 41% for 2020-21. The 1% decrease is to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the central government.
In 2020-21, the following grants will be provided to states: (i) revenue deficit grants, (ii) grants to local bodies, and (iii) disaster management grants. The Commission has also proposed a framework for sector-specific and performance-based grants.
The Commission noted that recommending a credible fiscal and debt trajectory roadmap remains problematic due to uncertainty around the economy. It recommended that both central and state governments should focus on debt consolidation and comply with the fiscal deficit and debt levels as per their respective Fiscal Responsibility and Budget Management (FRBM) Acts.
The Commission recommended the following to expand the taxing capacity: (i) broadening the tax base, (ii) streamlining tax rates, (iii) and increasing capacity and expertise of tax administration in all tiers of the government.
The Commission recommended forming an expert group to draft legislation to provide for a statutory framework for sound public financial management system.
It recommended that both the central and state governments should make full disclosure of extra-budgetary borrowings. The outstanding extra-budgetary liabilities should be clearly identified and eliminated in a time-bound manner.