States need greater fiscal space to meet their expenditure obligations: NK Singh

Pushing for a relaxation in fiscal norms governing the finances of the states, NK Singh, chairman of the 15th Finance Commission, said states needed greater fiscal space to meet their expenditure obligations.
“Clearly, the finances of the states are under stress, there are issues of fiscal pressure. This is a time, when I believe, some of the basic tenets of the fiscal norms need to be suitably relaxed. This is a time when states need greater freedom to be able to meet their initial obligations, on account of this pandemic,” Singh said on Wednesday.

Singh was delivering a lecture on the impact of the pandemic on fiscal architecture and fiscal federalism in the near future, to students of the Indian Institute of Management, Bangalore.

According to Singh, the opaqueness and clutter in the demarcation of powers of the central and state governments under the Constitution and other Acts posed a hindrance to India’s pandemic response.

In the short term, Singh called for greater harmony between the Disaster Management Act, 2005, and the Epidemic Diseases Act, 1897, both of which have been invoked in the process of responding to the pandemic.

“In the short term, there are issues of dealing with the clutter of the Disaster Management Act and the Epidemic Act. They need to have greater harmony,” he said.

While the newer Act gives powers to all levels of governments from the Centre to districts to set up disaster management authorities, more power rests with the Centre in terms of policy.

The older legislation demarcates powers of the Centre and state governments in their response to an epidemic. It grants states powers over laws governing people within its jurisdiction while the Centre is empowered to dictate terms on ports of entry.

A similar confusion exists due to the demarcation of powers under the seventh schedule of the Constitution, according to Singh. The schedule deals with subjects under the purview of the Central and state governments and those that are governed by both.

“Until the seventh schedule is cleaned up, fiscal architecture, as we go forward, will remain clumsy and ill-designed to suit the contemporary needs,” Singh said, stating that circumstances are very different now compared to when the Constitution was drawn up.