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15th Finance Commission holds meeting with its Advisory Council

Finance Commission Committee - Fifteenth Finance Commission - Finance Commission -Taxscan

The Fifteenth Finance Commission (XVFC) had online meetings with its Advisory Council on 23-24 April, 2020 and discussed various issues confronting the Commission now. The meeting, chaired by Shri N. K. Singh, Chairman XVFC was attended by all members and senior officials of the Commission. From the Advisory Council, Dr.Sajjid Z Chinoy, Dr.Prachi Mishra, Mr. Neelkanth Mishra and Dr.OmkarGoswami joined the meeting on 23rd April, 2020 and Dr. Arvind Virmani, Dr. Indira Rajaraman, Dr.DK Srivastava, Dr. M Govinda Rao, Dr.SudiptoMundle and Dr. Krishnamurthy Subramanian joined the meeting on 24th April, 2020. These were the second round of meetings with the Advisory Council, after the submission of the Report of the XVFC for the year 2020-21.

The Members of the Advisory Council felt that the impact of the COVID pandemic and the national lockdown on the Indian economy can come through the slowdown in the domestic activity, its impact on the cash flows of financial institutions and business enterprises and the loss of global demand for Indian products because of a steep global recession. All of them were unanimous to suggest that the projections of real GDP growth made before March 2020 need to be relooked into entirely, and, revised downwards considerably. Once the lockdown of the economy is released, the recovery can only be excepted to be gradual, depending on the ability of the workforce to get back to work soon, restoration of supplies of intermediates and cash flows, and, of course, the demand for output. Therefore, the full magnitude of the economic impact of COVID will only be clear only over the course of time.

The Advisory Council also felt that the magnitude of the impact of these developments on public finances is uncertain, but will certainly be significant. Governments will have substantial expenditure burden on account of health, support to poor and other economic agents. The Council Members felt that the shortfall in tax and other revenues will be largely due to subdued economic activity. Hence, fiscal response to the crisis should be much more nuanced. It is important not just to look at the size of the fiscal void response but also carefully at its design. The Council apprised the Finance Commission of the different suggestions floating around in terms of public expenditure support to the economy. They felt that the following considerations, inter alia, would be very important.

(a)      Small scale enterprises were cash-starved even prior to the onset of. As their activity levels and cash flows are affected, it is important that a support mechanism is devised to help them overcome this problem.

(b)     Non-banking financial companies are also affected by the slowdown. In order to avoid bankruptcies and deepening of NPAs in the financial sector, measures should be appropriately designed. Measures like partial loan guarantee may help. The Reserve Bank of India will have a key role in ensuring that financial institutions are well-capitalized.

(c)      The finances of the Central and State Governments need to be watched carefully. As of now, adequate provision for ways and means advances can largely help governments to manage cash-flow mismatches. As we move ahead, we need to think of options for financing the additional deficit. It is important to ensure that the State governments get access to adequate funds to undertake their fight against the pandemic.

(d)     The Council also felt that it is likely that different States may come out of the severity of the impact of the pandemic in different stages. Hence, the revival of activity in different States will be at a varied pace.

Fifteenth Finance Commission along with its Advisory Council is keenly watching the evolving situation globally as well as domestically.

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