Planning Commission: Now, finance panel may allocate funds

Over Rs. 3 lakh cr. was allotted to States by plan panel for various schemes

Updated - December 04, 2021 11:36 pm IST

Published - December 09, 2014 02:41 am IST - New Delhi

In the aftermath of the scrapping of the Planning Commission, the Modi government is mulling whether the role of allocating plan funds across States can be given to the Finance Commission. It would like the new body that will replace the Plan panel to be a ‘think-tank in the era of liberalisation’ that could possibly be merged with the National Development Council (NDC), said a government source.

The NDC is the highest development policy planning body, comprising the Prime Minister, Union Cabinet Ministers, State Chief Ministers and State Finance Ministers.

The Modi government scrapped the Plan panel on August 13 through a Cabinet decision. Till then, the Centre had transferred to States in excess of Rs. 3,00,000 crore, or 2.5 per cent of GDP, annually through the panel. The mechanism for the transfers was two-fold. States received funds for Centrally Sponsored Schemes. They also received Central Assistance for their plans.

Each State’s share was arrived at following discussions between the Planning Commission, Finance Ministry and the State Government in the case of Central Assistance.

For Centrally Sponsored Schemes, the individual State shares were determined through discussions between the Planning Commission, States and Union Ministries such as Health and Rural Development.

The Modi government is also considering reducing the total number of Centrally Sponsored Schemes to 10 from the current 60 plus. The Centre may not prescribe in detail how States should spend the funds it allocates to them. There could be some broad categories such as health and education, indicated Telangana Chief Minister K. Chandrasekhar Rao.

The Finance Commission is a Constitutional body that is appointed once every five years to recommend a formula for devolving the Centre’s tax revenues to States. The Centre transfers about 2 per cent of GDP to States from its tax revenue.

For the Finance Commission to determine and allocate development funds to States, it will have to be a permanent body. For this the Modi government would have to amend the Constitution, said a former Planning Commission member.

Read our editorial: >Unanswered questions

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