Finance Commission follows principles of vertical and horizontal decentralization to ensure justice and equity among states: NK Singh

In an interview with CNBC-TV18, NK Singh, head of the 15th Finance Commission and member of the Concurrent Polls Panel, raised concerns over state discrimination in allocation of financial resources.

He stressed that the Finance Commission strictly adheres to the constitutional principles of vertical and horizontal decentralization to ensure justice and equity among states.

The vertical component concerns the distribution of the divisible resource pool between the central government and the states.

Singh noted that the 15th Finance Commission maintained the 42 per cent allocation to states, a percentage established by its predecessor.

The horizontal component concerns the distribution formula between the States themselves. Singh emphasized that these principles are crucial for maintaining a balanced fiscal structure within the country.

“When states talk about discrimination, there are two elements that are unavoidable and constitutionally entrenched. One is the vertical component, the other is a horizontal component. Vertical means that from the divisible pool, the pool considered suitable for dividing resources, each Finance Commission sets the percentage. I accepted what was fixed by the previous Finance Commission, namely that 42% of the divisible mass was allocated to the States and the balance to the Central Government. And then the term horizontal means that from the pool allocated to the state government, what is the formula to distribute it among the states and among the states. So those are two main functions,” Singh said.

“The divisible pool does not come out of the consolidated fund of India. But the elements available to the states in the form of grants to bridge the budget deficit, the sums of money allocated for disaster management, the very large sums paid at the third level, come from the consolidated fund of India. So these are subsidies, not entitlements,” Singh added.

Regarding India’s economic growth, Singh emphasized the need for a synergistic approach between manufacturing and services sectors to achieve high growth rates. He rejected the idea that India could only become a global services hub while leaving manufacturing to other countries like China. “The earlier belief that India could become the great services hub of the world and China could take over manufacturing was a myth that previous governments did not pay much attention to,” Singh remarked.

He advocated for a balanced strategy that harnesses technology, improves productivity and addresses both economic growth and environmental sustainability.

Singh highlighted the critical role of the manufacturing sector in achieving high economic growth rates, saying: “The recognition that the manufacturing sector requires a certain degree of priority or some type of regulatory framework and support in multiple ways is an unavoidable necessity. »

Singh also highlighted the importance of restructuring agricultural practices to ensure sustainability and provide alternative livelihoods through agro-based economic activities. He said this could be a major job creator.

He supported the Prime Minister’s focus on the challenges facing agriculture, stressing that an integrated approach involving services, manufacturing and agriculture is essential to provide gainful employment opportunities.

Watch the accompanying video for the full conversation