Archive for March 11th, 2019

Spain planning to establish a macroprudential board..

March 11, 2019

Spain has asked ECB’s opinion on its proposal to establish a macroprudential board. ECB says it is a good idea to have one.

The organisation of the new board is interesting. It will be housed under the Ministry with central bank chiefs part of the board:

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SBI links deposit, loan interest to repo rates..

March 11, 2019

In a surprising move over the weekend. SBI decided to link its deposit and lending rates with RBI’s repo rate on selected products.

Hiral Thanawala of moneycontrol reports on this move:

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Challenges to Indian Fiscal Federalism

March 11, 2019

It is not too often that one gets to see Finance Minister of a State (even at centre) writing a research piece in EPW. Kerala’s Finance Minister T.M. Thomas Issac (who holds a PhD from CDS) coauthors a piece on fiscal federalism along with R Mohan and Lekha Chakraborty.

They say not all is well in India’s fiscal federalism with States on the wrong side of the equation:

Are we quite far from what cooperative federalism envisages? Assessing the trends in tax devolution, the experience with the FRBM acts in the light of the recommendations of the FRBM review committee, the structure of GST, the ToR of the Fifteenth Finance Commission, and the obstacles in the decentralisation process, the hypothesis cannot be rebutted.

As revealed by many studies, the performance of tax revenue in India is below its potential. This limits not only the spending capacity of the centre, but also the amount of taxes devolved to the states. Besides, what is constitutionally sought to be devolved to the states is not being done in its spirit by the centre, which imposes surcharges and cesses as a means of raising revenue, without the same being part of the divisible pool of taxes shareable with the states. There also exists non-transparency in the computation of net proceeds.

The FRBM acts have imposed an asymmetric burden on the state governments in the face of non-compliance to the targets by the central government. This is sought to be accentuated by the recommendations of the FRBM Review Committee, 2017. The rate apportionment and voting rights in the GST Council are not in accordance with the principles of cooperative federalism, in which decisions are to be taken by a consensus among equal stakeholders. The decentralisation of the LGs is impeded by the asymmetry in centre–state relations.

The ToR of the Fifteenth Finance Commission, which is the last in the chain of events, hastens the process of centralisation and if implemented, cooperative federalism would only exist in name, devoid of any content whatsoever. Fundamental changes are needed to make cooperative federalism a meaningful and functioning one.

The authors point to some interesting fiscal trends.

 


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