Finance Commission To Be Constituted By November End, Govt On Path To Meet Deficit Target For FY24: Finance Secretary

Govt plans to follow deficit target as strong tax and non-tax collections are expected to help the govt meet it’s spending requirements and compensate for any shortage in disinvestment proceeds.

The government will be constituting the next Finance Commission by November end, stated finance secretary T V Somanathan. The Finance Commission is a constitutional body that provides suggestions on how to balance centre-state financial relations. One of the important things it looks into is the tax devolution ratio, wherein it gives inputs on what ratio to divide tax in between the central and state governments for a period of five years.

The previous Finance Commission, headed by N K Singh, provided its recommendations to the President for five fiscal years, from 2021-22 to 2025-26, on November 9, 2020. The next commission will be providing inputs for the next five years starting April 1, 2026. While talking to PTI, Somanathan said the government will be deciding the 16th Commission by the end of November this year, as per the statutory requirements. 

The previous Commission kept the tax devolution ratio at 42 per cent, unchanged from the 14th Commission, under which state governments were given 42 per cent of the divisible tax pool of the Centre, the report cited. 

Other recommendations of the N K Singh-led Commission included fiscal deficit, debt path for the Centre and States, and many more. On the basis of the path for fiscal consolidation, the aim for the government is to reduce fiscal deficit to 4.5 per cent of the gross domestic product (GDP) by 2025-26. The deficit target for the current fiscal year is 5.9 per cent of the GDP, lower from 6.4 per cent in the previous fiscal year. 

The finance secretary further stressed that the government plans to abide by the deficit target as strong tax and non-tax collections are expected to help the government meet it’s spending requirements and compensate for any shortage in disinvestment proceeds. Somanathan added, “Disinvestment target is unlikely to be met. However, I would say in aggregate the collective amount between disinvestment and non-tax revenue is likely to be very close to the budget, he said. The total of disinvestment receipts, plus non-tax receipts are likely to be very close to the Budget Estimates.”

Notably, the government received a high dividend from the Reserve Bank of India and is expecting higher dividends from public sector banks and undertakings compared to the budget estimates. RBI in May authorised a Rs 87,416 crore dividend payout to the Indian government for the 2022-23, almost three times more than the dividend of Rs 30,307 crore paid for 2021-22. Further, the government expects more earnings to follow with the public sector banks reporting record profits worth more than Rs 1 lakh crore in the previous fiscal year.