The government today constituted the 14th Finance Commission under the Chairmanship of former RBI Governor Y V Reddy, which among other things, will suggest steps for pricing of public utilities like electricity and water in an independent manner.
Announcing the formation of the Commission, Finance Minister P Chidambaram said it will look into issues like disinvestment, GST compensation, sale of non-priority PSUs and subsidies.
The other members of the Commission, which will submit its report by October 31, 2014, include Former Finance Secretary Sushma Nath, NIPFP Director M Govinda Rao, Planning Commission Member Abhijit Sen and Former Acting Chairman of National Statistical Commission Sudipto Mundle.
The recommendations of the Commission, set up under the provisions of the Constitution on sharing of tax proceeds between the Union and States, will apply for the period beginning April 1, 2015.
Among other things, the Commission would look into the "need for insulating the pricing of public utility services like drinking water, irrigation, power and public transport from policy fluctuations through statutory provisions".
Asked whether the government is giving a signal for price hike of public utilities, Chidambaram said: "We are not giving any signal. We are only highlighting matters (relating to) the management of nation's finances over the five year period from 2015 ... These are matters which cannot be ducked or shrugged away. We have to face these matters".
Finance Commission is set up every five years to suggest principles governing the distribution of tax proceeds among Centre, States and local bodies.
The Commission, Chidambaram said, would review the state of finances, deficit and debt levels of the Centre and states, keeping in view, in particular, the fiscal consolidation roadmap recommended by the 13th Finance Commission.
It would suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth including suggestions to amend the Fiscal Responsibility Budget Management Acts.
With regard to debt-stressed states, the Commission has been asked to suggest steps for augmenting revenues of states which are lagging.
"The taxation efforts of the Central government and each state government and the potential for additional resource mobilisation to improve the tax-Gross Domestic Product ratio in the case of the Union and tax-Gross State Domestic Product ratio in the case of the States" would also be part of the recommendations of the Finance Commission.
Besides, it would suggest the level of subsidies that would be essential for sustainable and inclusive growth and sharing of burden between the Centre and states.