The Ninth Finance Commission

The Ninth Finance Commission of India was constituted in June 1987 under the chairmanship of N.K.P. Salve. Its primary mandate was to make recommendations regarding the distribution of net proceeds of taxes between the Union and the States, the principles governing Grants-in-Aid to States, and any other matter referred to it by the President of India in the interest of sound finance.

This commission operated in a challenging economic environment. India was facing increasing fiscal pressures and significant disparities in the financial health of different states. Therefore, the Ninth Finance Commission’s recommendations aimed at addressing these issues while promoting fiscal prudence and efficiency.

A significant departure from previous commissions was the Ninth Finance Commission’s emphasis on a normative approach in assessing the revenue and expenditure needs of the states. Instead of simply extrapolating past trends, the commission attempted to determine the reasonable and desirable levels of revenue and expenditure for each state, taking into account their specific circumstances and needs. This normative approach aimed to provide a more equitable and realistic assessment of the states’ financial requirements.

The commission adopted a two-report approach. The first report, submitted in 1988, provided recommendations for the financial year 1989-90. The second report, submitted in 1989, covered the period from 1990-91 to 1994-95. This division allowed the commission to respond to evolving economic conditions and incorporate updated data into its recommendations.

Key recommendations of the Ninth Finance Commission included:

• Tax Devolution: The Commission recommended a modification in the formula for sharing Union taxes with the States, giving greater weight to factors like population, poverty, and infrastructure. The goal was to ensure that states with greater needs received a larger share of the tax revenue.
• Grants-in-Aid: The commission recommended grants to states to cover their non-plan revenue deficits, taking into account their normative assessment of revenue and expenditure. These grants were intended to help states bridge the gap between their resources and essential spending needs.
• Debt Relief: Recognizing the burden of debt on many states, the commission recommended measures for debt relief, including rescheduling and restructuring of state debts owed to the Union government.
• Fiscal Discipline: The commission emphasized the importance of fiscal discipline and urged both the Union and the States to adopt measures to control expenditure and improve revenue generation.

The Ninth Finance Commission’s recommendations, while groundbreaking in their normative approach, were met with mixed reactions. Some states felt that the commission’s normative assessment of their revenue and expenditure needs was too strict and did not adequately reflect their specific circumstances. Others welcomed the emphasis on fiscal discipline and the measures for debt relief.

Despite the criticisms, the Ninth Finance Commission played a crucial role in shaping the fiscal relations between the Union and the States. Its focus on a normative approach, its emphasis on fiscal discipline, and its measures for debt relief laid the foundation for future Finance Commissions to build upon. The commission’s efforts contributed to a more equitable and sustainable fiscal framework in India.