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Second Report the Ninth Finance Commission SECOND REPORT OF THE NINTH FINANCE COMMISSION (FOR 1990-95) H O R A R Y & documentation c e n t r e National of Educatioaal PUon.r,; and Administration. 17-B f* Aurobiudo Mar*» Ne« t,«lbi-llt0l6 d o c , No ...... CONTENTS CHAPTER PAGE I. Introduction 1 II. The Approach Of The Commission For The Period 1990-95. 3 - 6 III. Assessment Of States’ Revenue Receipts And Expenditures. 7-14 IV. Reassessment Of The Forecast Of The Central Government. 15-17 V. Devolution Of Taxes, Distribution Of Additional Excise Duties And Grant In Lieu Of Tax On Railway Passenger Fares. 18-22 VI. Financing Of Relief Expenditure. 23-26 VII. Grants-ln-Aid. 27 - 32 VIII. Merger Of Additional Duties Of Excise With Basic Duties Of Excise. 33-34 IX. Debt Position Of The States And Corrective Measures. 35 - 39 X. Concluding Observations. 40 - 42 XI. Summary Of Important Recommendations And Observations. 43-46 1. Note Of Dissent And General Observations By Shri Justice A. S. Qureshi, (Member). 47 - 56 2. Note By Majority. 57 3. Note By Shri N. K. P. Salve, Chairman, Dr. Raja J. Chelliah, Member And Shri R. Keishing, Member. 57 ANNL^Vhtf. 61 -9 1 APPF 95-133 CHAPTER I INTRODUCTION 1.1 This Finance Commission, the ninth since the 5. The Commission may suggest changes, if any, to be commencement of the Constitution, was constituted by the made in the principles governing the distribution among the President by his Order (SO No.581 (E) dated the 17th June, 1987), States of - which is reproduced below:- (a) the net proceeds in any financial year of the ”ln pursuance of the provisions of article 280 of the additional duties of excise leviable under the Constitution of India, and of the Finance Commission Additional Duties of Excise (Goods of Special (Miscellaneous Provisions) Act, 1951 (33 of 1951), the Importance) Act, 1957 (58 of 1957), and President is pleased to constitute a Finance Commission consisting of Shri N.K.P. Salve, Member of Parliament, as the (b) the grants to be made available to the States in lieu Chairman and the following four other Members, namely:- of the tax under the repealed Railway Passenger 1. Shri Justice Abdus Sattar Qureshi, Fares Tax Act, 1957 (25 of 1957). Judge, Gujarat High Court - Member 6. In making its recommendations on the various 2. Dr.Raja J. Chelliah, matters aforesaid, the Commission shall adopt the Member, Planning Commission - Member population figures of 1971 in all cases where population is regarded as a factor for determination of devolution of taxes 3. Shri Lai Thanhawla and duties and grants-in-aid. Former Chief Minister of Mizoram. • Member 4. Shri MaheshPrasad - Member Secretary 7. The Commission may examine the feasibility of the merger of additional duties of excise in lieu of sales tax with 2. The Chairman and the other Members of the basic duties of excise and evolve a suitable formula for Commission shall hold office from the date on which they allocating a part of the duties of excise in respect of the goods respectively assume office upto the 30th day of June, described in column (3) of the First Schedule to the Additional 1989. Duties of Excise (Goods of Special Importance) Act, 1957 (58 3. The Commission shall make recommendations as to of 1957) for distribution among the States, in lieu of sales the following matters:- tax. 8. The Commission may make an assessment of the (a) the distribution between the Union and the States of the debt position of the States as on the 31 st day of March, 1989 net proceeds of taxes which are to be, or may be, divided and suggest such corrective measures as deemed between them under Chapter I of Part XII of the necessary keeping in view the financial requirements of the Constitution and the allocation between the States of the Centre. The corrective measures will be with particular respective shares of such proceeds; reference to investments made in infrastructure projects and (b) the principles which should govern the grants-in-aid of shall have linkage with improvements in financial and the revenues of the States out of the Consolidated Fund managerial efficiency. of India and the sums to be paid to the States which are in need of assistance by way of grants-in-aid of their 9. The Commission may review the policy and revenues under artide 275 of the Constitution for arrangements in regard to the financing of relief expenditure purposes other than those specified in the provisos to by the States affected by natural calamities and suggest such clause(1) of that article. modifications as K considers appropriate, in the existing arrangements, having regard, among other considerations, 4. In making its recommendations, the Commission to the need for avoidance of wasteful expenditure. The shall- Commission. may examine, inter-alia,. the feasibility of (0 adopt a normative approach in assessing the establishing a national insurance fund to which the State receipts and expenditures on the revenue aocount Governments may contribute a percentage of their revenue of the States and the Centre and, in doing so, keep receipts. in view the special problems of each State, if any, 10. On the matters aforesaid, the Commission shall and the special requirements of the Centre such as matte two reports, the first report covering a period of one defence, security, debt servicing and other year commencing on the 1 st day of April, 1989, by the 30th committed expenditure or liabilities; June, 1988, and the second report covering a period of five (I) have due regard to the need for providing adequate years commencing on the 1st day of April, 1990, by the 30th incentives for better resource mobilisation and June, 1989. financial discipline as well as closer linking of expenditure and revenue-raising decisions; 11. The Commission shall indicate the basis on which it has arrived at the findings and make available the State-wise OH) take into account the need for speed, efficiency and estimates of reoeipts and expenditures.” effectiveness of Gdvernment functioning and of 1.2 On his taking over as Chief Minister of Mizoram Shri Lai delivery systems for Government'programmes; and Thanhawla resigned his membership of the Commission and his resignation was accepted by the President with effect from the 0*0 k**p in view the objective of not only balancing the 24th day of January, 1989. Shri S. Venkitaramanan, Adviser to the reoeipts and expenditure on revenue aocount of Prime Minister, was appointed as a Member of the Commission, both the States and the Centre, but also generating in place of Shri Lai Thanhawla, vide the President's Order of the aur]pluses for ca ofcal investment V IMew. 1 QftQ ShriS Venltfcaranrmnanraskmfldhkmttmh— hin 2 of the Commission on his appointment as Adviser to the Governor Sikkim and Tripura (Annexure I.6). We had programmed a visit to of Karnataka. On his appointment as Secretary, Ministry of Sikkim on 20th and 21st September, 1989. The Commission, Environment and Forests, Shri Mahesh Prasad resigned his however, could not proceed beyond Siliguri, despite all its effort, membership of the Commission and Shri K.V.R. Nair was because of inclement weather in Skkim and land-slides en route appointed the Member Secretary of the Commission from the to Gangtok. The Chief Ministers of Tripura, Mizoram and 13th July, 1989. Shri R. Keishing, former Chief Minister of Nagaland were kind enough to make it convenient to visit Delhi Manipur, assumed charge as part-time Member of the and have detailed discussions with the Commission on the 8th, Commission on Saturday the 25th November, 1989. 17th and 29th November, 1989, respectively. We found visits to the States of immense value specialty because of the open and 1.3 Shri N.K.P. Safve, Chairman, and Dr. Raja J. Chelliah, free discussions with the State Chief Ministers, their Cabinet Member, continued to render part-time service. Shri Justice A.S. colleagues and officials. During these visits the State Qureshi, Member, rendered part-time service upto the 3rd Governments also arranged some field visits and we could avail August, 1989, whereafter he became a full-time Member. of the opportunity to gain first hand knowledge of the ground 1.4 Paragraph 10 of the Order dated 17th June, 1987, conditions and other factors affecting delivery of social and required the Commission to make two reports, the first report economic services and consequently expenditure needs of the covering a period of one year commencing on the 1 st day of April, State. These discussions and visits enabled us to have a better 1989, and the second report covering a period of five years understanding and appreciation of the problems of the States. commencing on the 1 st day of April, 1990. The President having During these visits to the States, the Commission also had some accepted our request to extend the date for its submission to 31 st very useful meetings with Leaders of the Opposition, Members 01 July, 1988, our first report for 1989-90 was presented to the Parliament, Members of State Legislatures, representativesfrom President on 29th July, 1988. Although the work on both the Chambers of Commerce and Industry, Associations and reports was taken up concurrently, it was possible to attend to the Federations of State Employees, economists and other •minent major issues and undertake the detailed exercises relating to the personalities. We are grateful to all the State Governments we second report only after the presentation of the first report. A visited for having made meticulous arrangements for our visits review of the progress of work made by us in April/May, 1989, and for the cooperation extended by them in full measure to the convinced us that it would not be possible to submit the second Commission and its secretariat.
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