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Analyzing the Finance Commission’s impact on intergovernmental fiscal transfer – Defense News
By Manish Kumar Tiwary
On 29 November 2023, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved the Terms of Reference of the Sixteenth Finance Commission as part of the Azadi Ka Amrit Mahotsav celebrations. This approval marks a significant step in setting the commission’s agenda, whose recommendations, once accepted by the government, will cover a period of five years from 1 April 2026. As mandated by article 280(1), of the Constitution, the President of India plays a crucial role in the constitution of the Finance Committee. The Sixteenth Finance Commission was constituted on December 31, 2023, with Shri Arvind Panagariya, former vice-chairman of NITI Aayog, as its chairman. The following members were appointed to the Commission with the approval of the President of India: Ajay Narayan Jha, former member of the 15th Finance Commission and former Expenditure Secretary, as a full-time member; Smt. Annie George Mathew, former Special Secretary for Expenditure, as a full-time member; Dr. Niranjan Rajadhyaksha, Executive Director, Artha Global, as a full-time member; and Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, as a part-time member. The commission is tasked with recommending the distribution of net tax revenues between the Union and the States, allocating respective shares among the States, providing grants and suggesting measures to increase resources for Panchayats during the grant period.
The Fifteenth Finance Commission, constituted on November 27, 2017, provided recommendations for a period of six years starting April 1, 2020, through interim and final reports. These recommendations will remain valid until the end of the 2025-26 financial year. The newly created Sixteenth Finance Commission will build on this foundation and will have specific Terms of Reference to guide its work. The commission’s Terms of Reference include several critical mandates: determining the distribution of net tax revenues between the Union and the States under Chapter I, Part XII of the Constitution, and allocating the respective shares among the States. It will further lay down principles to govern grants from the Consolidated Fund of India to the revenue of the State under Article 275 of the Constitution, excluding the purposes specified in the provisions of clause (1) of that Article. The committee will also propose measures to increase the Consolidated Fund of a State, thereby supplementing the resources of Panchayats and Municipalities based on the recommendations of the State Finance Commission. Furthermore, the committee is expected to review the current provisions for financing Disaster Management initiatives, taking into account the funds constituted under the Disaster Management Act, 2005. It is expected that the report of the Sixteenth Finance Committee be available by October 31, 2025, covering a five-year period beginning April 1, 2026. Historically, the Fifteenth Finance Commission has been tasked with making recommendations for the fiscal period 2020-21 to 2024-25. However, an amendment to its Terms of Reference on 29 November 2019 extended its scope to include an additional year, thus covering six years from 2020-21 to 2025-26. Typically, the Finance Committee takes around two years to finalize its recommendations. According to Article 280(1) of the Constitution, a Finance Commission is constituted every five years or earlier if necessary. As the recommendations of the Fifteenth Finance Commission extend until March 31, 2026, the Sixteenth Finance Commission is now being constituted to ensure continuous financial assessment and planning of the Union and States. The groundwork for the Sixteenth Finance Commission began with the formation of an Advance Cell within the Ministry of Finance on 21 November 2022, to oversee the preliminary tasks pending the formal constitution of the commission. Subsequently, a Working Group, led by the Finance Secretary and the Secretary (Expenditure), including members such as the Secretary (Economic Affairs), the Secretary (Revenue), the Secretary (Financial Services), the Chief Economic Adviser, the NITI Aayog and Additional Secretary (Budget), was created to assist in formulating the Terms of Reference. This group engaged in a consultative process, seeking and deliberating on views and suggestions from the State Governments and Union Territories with the legislatures, ensuring a comprehensive approach to the commission’s mandates. This strategic approach underlines the government’s commitment to structured financial governance, reflecting the broader objectives of Azadi Ka Amrit Mahotsav to celebrate India’s progress and prepare for future challenges in a coordinated and inclusive manner.
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Figure 1 titled “Tax Return Recommendations by Financial Commissions” explains the percentage of tax returns to states recommended by successive Financial Commissions from the 11th (2000-2005) to the 15th (2020-2025). From the 11th Finance Commission onwards, tax devolution to states was fixed at 29.5%. This relatively lower percentage indicates a greater retention of tax revenue by the central government during this period. The 12th Finance Commission (2005-2010) recorded a slight increase to 30.5%, reflecting a marginal shift towards greater revenue sharing with states. The trend continued with the 13th Finance Commission (2010-2015), which recommended an increase to 32%, demonstrating a continued movement towards increasing states’ share of tax revenues. The most significant jump occurred with the 14th Finance Commission (2015-2020), which increased tax refunds to 42%. This marked a fundamental shift in fiscal federalism, showing a strong move towards empowering states with a greater share of tax revenues, thus facilitating greater autonomy and financial resources at the state level. The 15th Finance Commission (2020-2025) slightly reduced this percentage to 41%, but the level remained high compared to previous periods, indicating a sustained commitment to greater financial empowerment of the State.
This trend of increasing tax devolution underlines the importance of cooperative federalism in India. Cooperative federalism involves a collaborative relationship between the central and state governments, where both entities work together to achieve common national goals while respecting each other’s autonomy. Greater return of tax revenue is crucial for several reasons. Firstly, it empowers States by providing them with greater fiscal resources, allowing them to plan and implement development projects tailored to their specific needs, thus addressing local issues more effectively. Secondly, it promotes balanced regional development, allowing states with fewer resources to boost critical sectors such as infrastructure, healthand education, promoting equitable development across the country. Furthermore, increased funding allows state governments to improve the quality and reach of public services, directly benefiting citizens through better healthcare facilities, educational institutions and public infrastructure. Greater fiscal autonomy also promotes trust and cooperation between central and state governments, strengthening the overall federal structure. Furthermore, financially empowered states are more likely to experiment with innovative policies and programs, contributing to overall policy improvement by expanding successful initiatives to other states or at the national level.
The gradual increase in tax devolution to the states, as recommended by successive Finance Commissions, signifies a substantial shift towards cooperative federalism in India. This change underlines the central government’s recognition of the importance of financially empowering States to achieve balanced and inclusive development. By providing states with a greater share of tax revenues, regional imbalances can be addressed more effectively and state governments can improve public services such as healthcare, education and infrastructure, directly benefiting citizens. Furthermore, greater fiscal autonomy promotes trust and cooperation between central and state governments, strengthening the federal structure. It also encourages states to experiment with innovative policies and programs, which can be scaled up or adopted nationally, contributing to overall policy improvement. The substantial increase recommended by the 14th Finance Commission and the sustained high level of decentralization in the 15th Finance Commission reflect a strong commitment to this approach.
In conclusion, increasing fiscal delegation to states is crucial to empower them, promote balanced regional development and foster a collaborative and innovative federal system, ultimately leading to more effective governance and a better quality of life . life for citizens across the country.
The author is PhD Scholar, Jamia Millia Islamia.
Disclaimer: The opinions expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproduction of this content without permission is prohibited.
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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