15th FC holds meeting with Reserve Bank of India

Speed Post News Network

New Delhi : The 15^th Finance Commission (FC) headed by Chairman N K Singh on May 8, 2019, held discussion with the Governor and Deputy Governors of RBI in Mumbai. Key issues raised by RBI Governor Shaktikanta Das and Finance Commission Chairman N K Singh were discussed threadbare at the meeting. These issues included  the necessity of setting up State Finance Commissions for respective State Governments, Public Sector Borrowing Requirements,· and Continuity of the Finance Commission.

It was felt that this was required more in view of  the  fiscal management requirements of the States, especially given the absence of mid-term reviews of Awards granted by the Finance Commission, as it used to happen earlier with the Awards granted by the Planning Commission.

Need for Expenditure Codes, especially given that expenditure norms vary  from state to state, Role of States in Growth and Inflation, for instance,  role of states in Ease of doing Business were also discussed at the meeting.The RBI made a detailed presentation before the Finance Commission  on State Government Finances for 2019-20.

The key takeaways were:  The importance of states in the economy has increased with the shift in composition of government finances, Fiscal deficit of states is budgeted to be lower in 2019-20 BE, but RE and actuals deviate significantly (reflecting poor fiscal marksmanship), Specific factors drive fiscal slippages, They include UDAY in the past and farm loan waivers and income support schemes in 2018-19 RE, and Outstanding debt as percentage of GDP rising despite moderation in interest payment as percentage of revenue receipts.

The RBI made another presentation on the issues and challenges of the market borrowings of state governments.  The main issues raised in this presentation were :  Increasing  orientation of  state governments borrowing to markets,· Improving secondary market liquidity – re-issuances, non-standard issuances, widening investor base, Risk Asymmetry– Phasing out of ADM, rating of SDLs, valuation of SDLs, more frequent disclosures, Strengthening the corpus of CSF/GRF – incentive for increasing the corpus, indicative target of 5% of outstanding liabilities/ guarantees by all states, Cash Management – States to improve their cash forecasting capabilities, states’ request to consider avenues for short term borrowings, Disclosures – Disclosure of high frequency data; budget presentations and release of financial data may be in a) common format b) within narrow time frame, Contingent liabilities – lack of reliable data, hence there is a need for standardisation in compilation and reporting under FRBM and to  enforce uniform ceiling for issue of guarantees.

During its two-day visit to Mumbai, the Finance Commission will also hold meetings with banks, financial institutions and economists as well, according to a PIB release.