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Sunday, Mar 07, 2010
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State to challenge panel directive

Special Correspondent

THIRUVANANTHAPURAM: The State government would explore ways to challenge the constitutional validity of the 13 {+t} {+h} Finance Commission's recommendation that the States must amend their Fiscal Responsibility Act (FRA) to suit its fiscal consolidation agenda, Finance Minister T.M. Thomas Isaac said here on Saturday.

Addressing a discussion on the 2010-11 budget organised by the Gulati Institute of Finance and Taxation (GIFT), the Finance Minister said State Planning Board vice-chairman Prabhat Patnaik would hold consultations with Constitution experts in the national capital on the possibilities of challenging the validity of the Finance Commission's recommendations.

The recommendations, he said, amounted to asking the State Legislature to enact legislations to suit its mandate. “The Finance Commission is telling us that we must go by its conditions if we are to get special grants under its award. This is unconstitutional,” Dr. Isaac said.

He said the State government would explore all possible avenues to challenge the Finance Commission's position.

The government's understanding was that the matter could be challenged before the Constitution Bench of the Supreme Court. The Finance Commission was imposing its conditions on the State and this was totally unacceptable, he added. According to the ‘Medium Term Fiscal Policy (MTFP) and Strategy Statement with Medium Term Fiscal Plan for 2010-'11 to 2012-'13' tabled in the Assembly as part of the budget documents, the debt consolidation and relief facility during the 12 {+t} {+h} Finance Commission period was limited to those St ates that enacted the fiscal res ponsibility legislation (FRL).

“Midway through, the Centre found that the targets set under the Fiscal Responsibility Act 2003 were unachievable in the face of the global financial crisis and they took deviation from the targets from the year 2007-'08. Hence the States also were allowed to deviate from the targets. The infirmities inherent in the FRL have thus been exposed.” The revised road map mandated the States to eliminate the revenue deficit as a percentage of Gross State Domestic Project (GSDP) in 2010-2015, contain the fiscal deficit to GSDP ratio to 3 per cent by 2014-15 and to phase down the Debt to GSDP ratio to 29.8 per cent by 2010-15.

“Here all grants and debt relief facilities have been linked to the amending of the FRL in line with the revised targets fixed for the States. The conditionalities stipulated for the release of grants are multifarious and the compliance of which will put policies and practices of the constitutionally elected State governments in subjugation. This implies that the States must now follow a contractionary path ignoring the constitutional goal of social justice and equality,” the MTFP document says.

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