Three days from now the National Development Council will meet to approve the XIth Five Year Plan. This plan period runs from 2007-2012. The government recently also appointed the XIIIth Finance Commission, under the chairmanship of Vijay Kelkar, a constitutional body that mainly deals with the distribution of revenues between the Centre and the states. They report by October 2009 and their recommendations would determine resource distribution from 2010 to 2015.

This would impact the last two years of the XIth Plan. Not synchronising the Five Year Plans with the Finance Commission is disadvantageous in manifest ways, most importantly, the uncertainty of resources for Gross Budgetary Support and finances that may be available to the states for a good part of the XIth Plan. Since the Finance Commission is a constitutional body, its appointment and timing is predictable. Five Year Plans still represent the socio-political strategy of the government in office and are liable to the unpredictability of electoral cycles. Considering the Plans’ developmental significance, modalities for bringing them in sync need closer consideration. Over the years, the Finance Commission has served the important purpose of an orderly distribution of revenues between the Centre and the States and has generally been perceived to be fair and rational. The focus of each Commission has however undergone changes.

The XIIIth Finance Commission has inter alia the mandate to examine the “need to improve the quality of public expenditure to obtain better outputs and outcomes” as well as “the need to manage ecology, environment and climate change consistent with sustainable development.” It is also expected to examine “the resources of the Central Government on account of the projected Gross Budgetary Support to the Central and State Plan.” This implies a holistic view of all resource availability to sustain both Plan and non-Plan expenditure. It will consider the impact of the proposed implementation of taxes on goods and services with effect from April 1, 2010.

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