Is a GST Council-like federal body for public expenditure a good idea?


The GST Council, chaired by the union finance minister, comprises finance ministers of all states

The Economic Advisory Council to the Prime Minister (EAC-PM) has recommended a GST Council-like mechanism for the Centre and states to oversee public expenditure. This is not the first time such a call has been made.

Earlier, former finance minister Arun Jaitley had highlighted the need for such a body. He had made a case for setting up such federal institutions to promote healthcare, rural development and agriculture sectors by optimally utilising resources of the Centre and states.

According to a report in The Indian Express, EAC-PM chairman Bibek Debroy has made a similar request, but in the larger domain of public expenditure.

He stated fiscal consolidation issue as a reason behind the recommendation. This year, the target of the Centre’s fiscal deficit is 3.3 per cent of GDP. The government will have to keep its expenditure within this limit. Fiscal deficit crossed 61 per cent of the target in June.

Jaitley had said that both the Centre and states spend a lot of money on sectors such as agriculture, rural development and healthcare.

As such there is a need for utilising the resources in an optimal manner by enhancing coordination between the centre and state governments for essential developmental activities.

“I think a coordination body on a non-statutory basis like the GST Council, as a federal institution can do that job (coordination),” Jaitley had said.

The GST Council, chaired by the union finance minister, comprises finance ministers of all states.

So far it has held 36 meetings and all the decisions, including rate cuts, have been taken on a consensus basis. This was despite the fact that there is a mechanism for voting in case there is no consensus.

The calls for a GST Council-like body for public expenditure is that not all items of public expenditure are in the Concurrent List. Why will the state governments give up their sovereignty to the Centre on the list which is exclusively their domain?

Of the three issues, highlighted by Jaitley—agriculture, health and education—only the part of the last one including technical education, medical education and universities, is in the concurrent list.

States agreed to the GST Council because there are some benefits for them such as they can also impose service tax, which was not possible before the constitutional amendment for GST.

States and the Centre have already pooled their sovereignty in indirect taxes, what would be left for the former in the economic sense if they lose their power in expenditure as well.

As such, some win-win situation will have to be explored before the idea can be embraced by the states.

If one looks at fiscal consolidation, it is the Centre that has not been able to exercise restraint on expenditure. States are doing their jobs pretty well.

In 2018-19, Centre’s fiscal deficit was 3.4 per cent of GDP, breaching the budget estimates of 3.3 per cent. The deficit had stood at 3.5 per cent in the previous financial year.

Combining it with the fiscal deficits of all states, the general fiscal deficit (of both the Centre and states) was projected to stand at 5.8 per cent of GDP in FY’19 (Budget Estimates), sharply lower than previous year’s 6.4 per cent. In absolute terms, combined fiscal deficit stood at Rs 1,099,797 crore in FY19 as compared to Rs 1,100,425 crore in FY18.

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