The 15th Finance Commission of India (FCXV) chaired by Shri N.K. Singh, had a 2-day visit to the financial capital of India, Mumbai (at the headquarters of the RBI), on 8th and 9th May, 2019 to conduct meetings with the Reserve Bank of India (which is headed by its Governor Shri Shaktikanta Das), the Banks and the Financial Institutions. The Commission was comprised of all the Commission Members and senior officials.
i. The meeting was attended by several banks, namely, State Bank of India (SBI), Bank of Baroda (BOB), Bank of India (BOI), Bank of Maharashtra, Central Bank of India (CBI), Union Bank of India (UBI), Axis Bank Ltd. HDFC Bank Ltd., ICICI Bank Ltd., IndusInd Bank, Kotak Mahindra Bank, Yes Bank Ltd, IDFC First Bank Ltd., IDBI Bank Limited.
ii. The FCXV also held an elaborate meeting with several distinguished economists to discuss the different Terms of Reference of the FCXV.
iii. The RBI made an elaborate presentation to the Finance Commission on State government finances for FY20 (the Financial year 2020).
iv. The following issues were discussed in the meeting:
- Viewpoints on the major macro-economic assumptions for the FCXV by keeping in mind the important factors for macro-financial stability.
- During the award period of the FCXV, the viewpoints on the price of borrowings of the Centre and the States.
- To ensure methods such that the borrowing cost becomes increasingly market-driven.
- Challenges faced in quantifying the contingent liabilities of and off-budget transactions of States, and other problems related to public financial management.
- Viewpoints on the probable debt trajectories of States and State-specific consolidation road map.
- The need for recapitalisation of banks and their influence on the cost of borrowings of governments.
- Possible cases of the Bimal Jalan Committee Report on surplus capital available with the RBI to be transferred to the Government.
- The Central Bank’s own assessment of the dividends and surpluses that could be transferred to the Government during the award period of FCXV.
- The Central Bank also discussed about ways to increase orientation of state government borrowing to markets, improve secondary market liquidity, risk asymmetry, as well as increase the amount of Consolidated Sinking Fund and Guarantee Redemption Fund.
v. Since the states’ finances are filled with farm loan waivers, income support schemes and Uday bonds for their power distribution companies, in the meeting, the RBI raised warning against the increasing risks to fiscal consolidation of the states. The outstanding debt as percentage of GDP (Gross Domestic Product) has been on the rise despite leniency in interest payment as percentage of revenue receipts.
vi. The meeting also discussed the requirement for expenditure codes. There was the requirement for expenditure codes because the expenditure rules differ from State to State.