Announcing the decision, finance minister P Chidambaram said a special reference has also been made regarding debt-stressed states such as Punjab, Kerala and West Bengal to the panel.
The commission will also take into account the taxation efforts and the potential for increasing tax-GDP ratio by such states, Chidambaram said, adding, “All this will help the Finance Commission in making recommendations for states that are far away from the national average.”
The minister also indicated that the government may revisit the criteria for granting special category status to states — a demand which was raised by Bihar chief minister Nitish Kumar.
The finance commission will have three full-time members — former finance secretary Sushma Nath, member of the PM’s Economic Advisory Council and director, NIPFP, M Govinda Rao and acting chairman of the National Statistical Commission Sudipto Mundle. Planning Commission member Abhijit Sen will serve as an additional member to the panel.
With the Centre looking at an over 5 per cent fiscal deficit, the commission has also been entrusted the responsibility of recommending measures to generate revenue surpluses for capital investment as well as potential for additional resource mobilisation to improve the tax to GDP ratio.
The new panel will also look into the impact of the proposed goods and services tax and suggest a mechanism to compensate for any revenue loss. It has been asked to submit its report by October 1, 2014.