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 Explanatory
Memorandum on the action taken on the Recommendations of the
Third Finance Commission in its Report dated the 14th December,
1961.
The Report of the Third Finance Commission
is being laid on the Table of Parliament. The recommendations
of the Commission are summarised in Section VIII of the Report.
All the unanimous recommendations of the Commission have been
accepted.
The report is not unanimous and there are
two recommendations on which there is a minute of dissent
from one Member. These are:-
(a) that a special purpose grant be made
to certain States for improvement of communications; and
(b) that 75 per cent of the revenue component
of the State Plans be included in the scheme of devolution
recommended by the Commission.
The majority recommendation regarding the
special purpose grant for improvement of communications has
been accepted, but Government do not consider it either necessary
or desirable to accept the other recommendation. The scheme
for financing the Plans of States as set out in the Third
Five Year Plan provides reasonable assurance to State Governments
that, given the necessary effort to mobilise resources and
subject to an assessment of the overall financial and economic
situation, the necessary Central assistance will be available
to State Governments through annual plans. There will be no
real advantage in the States receiving assistance for their
Plans partly by way of statutory grants-in-aid as recommended
by the Commission and partly on the basis of annual reviews
made by the Planning Commission at the time of the framing
of the annual plans. It is desirable to take an integrated
view of the entire financial picture of each State, both on
revenue and capital accounts, in relation to the State Plan
as a whole. The total amount of Central assistance which the
States may expect to receive for their Plans is not likely
to be affected either way by the decision taken on this recommendations
of the Finance Commission. On the other hand, there are considerable
advantages in continuing to work on the basis of annual Plans
and yearly assessments of the financial resources of the Centre
and the States, so that adjustments, if necessary, can be
made from year to year. In view of its large size and the
wide range of activities embodied in the Third Plan, annual
plans and reviews are an essential means of improving performance
in all sectors, ensuring the fullest effort to raise resources,
maintaining a satisfactory balance between different types
of projects, particularly those which are of high priority
and in one way or another inter-dependent. These purposes
will be better served through suitable changes, where appropriate,
in the existing procedures, rather than by converting any
portion of Central assistance for State Plans into statutory
grants, which must by their very nature lack flexibility.
At the same time, to enable State Governments to make any
day-to-day adjustments that may become necessary within the
framework of their annual plans, procedure relating to the
administration of Central assistance towards Plan expenditure
have been already simplified and it is proposed to make them
more flexible after consultation with the States.
The Commission's recommendations fall into
three categories, those to be implemented by an Order of the
President, those to be implemented by law by Parliament and
those to be implemented by executive orders. The recommendations
under Articles 270(1) of the Constitution fall in the first
category and the necessary Order will be submitted to the
President for approval. The recommendations relating to the
distribution of Union Duties of Excise, including Additional
Duties and Estate Duty on property other than agricultural
land fall in the second category. Necessary legislation is
being promoted in the current session of Parliament to implement
them. The recommendation regarding the distribution of the
ad hoc grant to the States in lieu of their share of tax on
Railway fares will be implemented by executive orders.
The Commission has also made certain general
observations in Chapter VII of its Report. These do not require
any immediate decision and will be considered in due course
in consultation with the State Governments, where necessary.
Sd/-
(L.K. Jha)
Secretary to the Government of India
New Delhi.
Dated the 12th March, 1962.
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