The recent reorganisation of Jammu & Kashmir’s statehood has created new exigencies for the Fifteenth Finance Commission in terms of reallocating central resources among different states. Consequently, the earlier scenario that catered to 29 states now needs to consider the devolution for 28 states. This transformation centers around the proposal to bifurcate the state of Jammu & Kashmir into two Union Territories – Jammu & Kashmir equipped with a Legislative Assembly and Ladakh, without a Legislative Assembly.
Union Territories and Central Government Funding
Decisions concerning funding for Union territories, which encompass Delhi, Puducherry, and others, fall under the purview of the Central government. These decisions are stated in the Union Budget and require approval from the Parliament.
The Special Category Status of Jammu and Kashmir
Previously, Jammu and Kashmir enjoyed the Special Category Status (SCS) as per the Central government. This status reserved a substantial portion, nearly 30%, of total central assistance for these states. Moreover, this recognition also led to a more preferential treatment regarding the grant versus loan mix in comparison with other states. However, changes were imposed following the constitution of the NITI Aayog and recommendations from the 14th Finance Commission (FFC). Consequently, central plan assistance to SCS States was incorporated into an increased devolution of the divisible pool to all states, switching from 32% to 42%.
Finance Commission’s Recommendations for Jammu and Kashmir
Regarding the share of states, the 14th FC suggested a provision of 1.854% for Jammu and Kashmir from 2015-16 to 2019-20. This percentage marked an increase from the previous 1.551% designated to the state in the preceding five years.
Understanding the Role of the Finance Commission
The Finance Commission, as a constitutional entity, is responsible for deciding the method and formula for tax proceeds distribution between the Centre and states, and among the states themselves. This distribution is based on the constitutional arrangement and present requirements. In alignment with Article 280 of the Constitution, the President of India is necessitated to constitute a Finance Commission every five years or at an earlier time if required.
Finance Commission Highlights
| Term | Description |
|---|---|
| The 15th Finance Commission | Constituted by the President of India in November 2017, under the chairmanship of NK Singh. The commission’s report, due by November end 2019, would make recommendations for the period from April 2020 to March 2025. |
| 14th Finance Commission (FFC) | Under FFC’s recommendation, central plan assistance to SCS States has been subsumed in an increased devolution of the divisible pool to all States from 32% to 42%. |
| Special Category Status (SCS) | Jammu and Kashmir was one of the few states that was accorded a special category status (SCS) by the Central government. Almost 30% of the total central assistance was earmarked for these states. |
Fiscal Repercussions for Jammu and Kashmir’s Statehood
The transformation of Jammu and Kashmir into two Union Territories is a significant event with far-reaching implications for the region’s administrative and fiscal landscape. It will invariably prompt thorough reassessments and recalculations, especially from entities such as the Finance Commission.
