The government is considering a number of measures to tackle corruption such as the formation of the office of the Lokpal or Ombudsman to investigate corruption cases, the Judicial Standards and Accountability Bill, 2010 that requires judges to declare their assets, lays down enforceable standards of conduct for judges, and establishes a process for removal of the Supreme Court and High Court judges (see PRS Analysis) and the Public Interest Disclosure and Protection of Persons Making the Disclosure Bill, 2010. In 2004, following the death of whistleblower Satyendra Dubey, the government issued a notification laying down certain guidelines for whistleblowing and protecting whistleblowers.  It introduced the Public Interest Disclosure and Protection of Persons Making the Disclosure Bill, 2010 in August 2010 to give statutory backing to the 2004 government resolution.  Commonly known as the Whistleblower’s Bill, it seeks to protect whistleblowers i.e. persons making a public interest disclosure related to an act of corruption, misuse of power or criminal offence by a public servant.  It designates the Central and State Vigilance Commissions to receive disclosures from whistleblowers and lays down safeguards for protection of whistleblowers (see PRS Analysis). The Bill was referred to the Departmentally related Standing Committee on Personnel, Public Grievances, Law and Justice.  The Committee presented its report on June 9, 2011. Key recommendations of the Standing Committee

  • § The Bill seeks to establish a mechanism to register complaints on any allegation of corruption or wilful misuse of power by a public servant.  The Committee broadly agreed with the provisions of the Bill but hoped that the government would consider the recommendations and adopt them wherever found appropriate.
  • § The Bill covers any complaint under the Prevention of Corruption Act, 1988; wilful misuse of power, and a criminal offence by a public servant.  The Committee suggested that the scope of the Bill may be widened to include offences such as maladministration and human rights violations.  Specifically, the Bill should cover accrual of wrongful gain to a third party.  Also, the definition of “public servant” in the Indian Penal Code and the Prevention of Corruption Act, 1988 could be adopted for this Bill.
  • § The Committee proposed that the defence forces and intelligence organisations should be included within the ambit of the Bill.  There could be reasonable exceptions based on operational needs of the forces.  Alternately, a separate authority could be set up for these exempted agencies.  It added that the Bill should cover members of the Council of Ministers, the judiciary (including higher judiciary) and regulatory authorities.
  • § The Bill states that a public interest disclosure can be made only to the Central or State Vigilance Commissions (VCs).  The Committee is of the opinion that this may restrict access especially to population in remote areas.  It recommended that the Rules should provide for a smooth and convenient system.  The Committee added that if there are multiple points at which complaints can be made, the identity of the complainant should be strictly protected.
  • § The Bill does not allow anonymous complaints.  The Committee however suggested that if the anonymous complaints have supporting documents that substantiates the claims, the VCs can investigate it.  It also advised that an alternative mechanism could be set up within or outside the Bill for inquiring into anonymous complaints.
  • § The Committee recommended that there should be a foolproof mechanism to ensure that the identity of the complainant is not compromised with at any cost.  This is especially important because without such a mechanism it would deter prospective complainants due to fear of harassment and victimisation.
  • § The Bill allows the VCs to reveal the identity of the complainant to the head of the organisation if it is necessary to do so.  The Committee recommended that the identity of the complainant should not be revealed to the head of the organisation without the written consent of the complainant.
  • § The Committee felt that undue burden should not be placed on the complainant to provide proof to substantiate his case.  As long as he is able to make out a prima facie case, the VCs should follow up on the case.
  • § The Committee is of the view that the VCs should inform the complainant about the outcome of the complaint.  Also, the VCs should give reasons if it decides to dismiss a complaint and the complainant should be given a reasonable hearing if he is not satisfied with the dismissal.
  • § The Committee proposed that there should be a time limit for conducting discreet inquiry by the VCs, for inquiry by the head of the organisation and for taking action on the recommendations of the VCs.  The authority would have to give reasons in writing if it wants the time limit to be extended.  There should also be some mechanism to ensure that the directions of the VC are not avoided to protect the wrongdoer.
  • § The Bill states that the VCs shall not entertain any complaints made five years after the action.  However, the Committee is not convinced that this restriction should be prescribed.  If at all there has to be a time limit, exceptions should be made in case of complaints which prima facie reveal offences of a grave nature.
  • § The Committee recommended that the term “victimisation” should be defined and the whistleblower should be provided with sufficient protection to protect him from violence.  Also, witnesses and other persons who support the whistleblower should be accorded the same protection.
  • § The Committee strongly recommended that there should be a mechanism to ensure that the orders of the VCs are complied with. Stringent action should be taken against any person who does not comply with the order.
  • § The Committee felt that the penalty for frivolous or malafide complaints was too high and should be substantially reduced.  Also, while deciding whether a disclosure is frivolous, the intention of the complainant should be examined rather than the outcome of the inquiry.  The complainant should also have the right to appeal to the High Court.

 

In November 2017, the 15th Finance Commission (Chair: Mr N. K. Singh) was constituted to give recommendations on the transfer of resources from the centre to states for the five year period between 2020-25.  In recent times, there has been some discussion around the role and mandate of the Commission.  In this context, we explain the role of the Finance Commission.

What is the Finance Commission?

The Finance Commission is a constitutional body formed every five years to give suggestions on centre-state financial relations.  Each Finance Commission is required to make recommendations on: (i) sharing of central taxes with states, (ii) distribution of central grants to states, (iii) measures to improve the finances of states to supplement the resources of panchayats and municipalities, and (iv) any other matter referred to it.

Composition of transfers:  The central taxes devolved to states are untied funds, and states can spend them according to their discretion.  Over the years, tax devolved to states has constituted over 80% of the total central transfers to states (Figure 1).  The centre also provides grants to states and local bodies which must be used for specified purposes.  These grants have ranged between 12% to 19% of the total transfers.

Fig 1Over the years the core mandate of the Commission has remained unchanged, though it has been given the additional responsibility of examining various issues.  For instance, the 12th Finance Commission evaluated the fiscal position of states and offered relief to those that enacted their Fiscal Responsibility and Budget Management laws.  The 13th and the 14th Finance Commissionassessed the impact of GST on the economy.  The 13th Finance Commission also incentivised states to increase forest cover by providing additional grants.

15th Finance Commission:  The 15th Finance Commission constituted in November 2017 will recommend central transfers to states.  It has also been mandated to: (i) review the impact of the 14th Finance Commission recommendations on the fiscal position of the centre; (ii) review the debt level of the centre and states, and recommend a roadmap; (iii) study the impact of GST on the economy; and (iv) recommend performance-based incentives for states based on their efforts to control population, promote ease of doing business, and control expenditure on populist measures, among others.

Why is there a need for a Finance Commission?

The Indian federal system allows for the division of power and responsibilities between the centre and states.  Correspondingly, the taxation powers are also broadly divided between the centre and states (Table 1).  State legislatures may devolve some of their taxation powers to local bodies.

Table 1

The centre collects majority of the tax revenue as it enjoys scale economies in the collection of certain taxes.  States have the responsibility of delivering public goods in their areas due to their proximity to local issues and needs.

Sometimes, this leads to states incurring expenditures higher than the revenue generated by them.  Further, due to vast regional disparities some states are unable to raise adequate resources as compared to others.  To address these imbalances, the Finance Commission recommends the extent of central funds to be shared with states.  Prior to 2000, only revenue income tax and union excise duty on certain goods was shared by the centre with states.  A Constitution amendment in 2000 allowed for all central taxes to be shared with states.

Several other federal countries, such as Pakistan, Malaysia, and Australia have similar bodies which recommend the manner in which central funds will be shared with states.

Tax devolution to states

Table 2The 14th Finance Commission considerably increased the devolution of taxes from the centre to states from 32% to 42%.  The Commission had recommended that tax devolution should be the primary source of transfer of funds to states.  This would increase the flow of unconditional transfers and give states more flexibility in their spending.

The share in central taxes is distributed among states based on a formula.   Previous Finance Commissions have considered various factors to determine the criteria such as the population and income needs of states, their area and infrastructure, etc.  Further, the weightage assigned to each criterion has varied with each Finance Commission.

The criteria used by the 11th to 14thFinance Commissions are given in Table 2, along with the weight assigned to them.  State level details of the criteria used by the 14th Finance Commission are given in Table 3.

  • Population is an indicator of the expenditure needs of a state. Over the years, Finance Commissions have used population data of the 1971 Census.  The 14th Finance Commission used the 2011 population data, in addition to the 1971 data.  The 15th Finance Commission has been mandated to use data from the 2011 Census.
  • Area is used as a criterion as a state with larger area has to incur additional administrative costs to deliver services.
  • Income distance is the difference between the per capita income of a state with the average per capita income of all states. States with lower per capita income may be given a higher share to maintain equity among states.
  • Forest cover indicates that states with large forest covers bear the cost of not having area available for other economic activities. Therefore, the rationale is that these states may be given a higher share.

Table 3

Grants-in-Aid

Besides the taxes devolved to states, another source of transfers from the centre to states is grants-in-aid.  As per the recommendations of the 14th Finance Commission, grants-in-aid constitute 12% of the central transfers to states.  The 14th Finance Commission had recommended grants to states for three purposes: (i) disaster relief, (ii) local bodies, and (iii) revenue deficit.