9th Finance

The Ninth Finance Commission of India, constituted in 1987 and chaired by N.K.P. Salve, covered the period from 1989-90 to 1994-95. Its primary mandate, like its predecessors, was to recommend principles governing the distribution of net proceeds of taxes between the Union and the States, and the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India. However, the Ninth Commission faced a unique challenge: the transition to a more decentralized and participatory development model in the country.

Unlike earlier commissions that relied heavily on the "gap-filling" approach (essentially providing grants to states to cover their fiscal deficits), the Ninth Finance Commission attempted a more normative assessment of states' revenues and expenditures. It sought to objectively determine the potential revenue generating capacity of each state and its legitimate expenditure needs, independent of their past performance. This involved estimating what a state *should* be earning and spending, rather than simply filling the gap between what they *were* earning and spending. This shift was a significant departure from past practices.

The Commission proposed a two-stage approach. In the first stage, it estimated the revenue and expenditure needs of each state based on normative standards, taking into account factors like population, poverty levels, infrastructure development, and special needs. This normative assessment was data-intensive and aimed at creating a more level playing field for all states. In the second stage, the Commission addressed the resource gap identified in the first stage through a combination of tax devolution and grants-in-aid.

One of the notable recommendations was the introduction of a "progressive norm" for revenue effort. This meant that states that made greater efforts to mobilize their own resources were rewarded with larger shares of the divisible pool of central taxes. This was designed to incentivize fiscal responsibility and discourage states from relying solely on central transfers.

The Ninth Finance Commission also considered the issue of debt relief for states. It recognized that many states were burdened by unsustainable debt levels, which hampered their development efforts. The Commission recommended specific debt relief measures, including rescheduling of existing loans and waivers of interest payments. However, these recommendations were limited in scope and did not fully address the underlying problem of state debt.

Despite its innovative approach, the recommendations of the Ninth Finance Commission faced considerable criticism. Many states argued that the normative assessment was overly complex and lacked transparency. Some felt that the Commission's assumptions were unrealistic and did not accurately reflect the ground realities in their states. Furthermore, the shift away from the gap-filling approach meant that some states, particularly those with poor fiscal management, received less funding than they had expected. This led to concerns about the potential impact on their development programs.

In conclusion, the Ninth Finance Commission represented a significant effort to reform the system of fiscal federalism in India. While its recommendations were not without their flaws and were met with resistance, the Commission's focus on normative assessment and incentive-based transfers laid the groundwork for future reforms and contributed to a more rational and equitable distribution of resources between the Union and the States.