N K Singh, co-chair of the G20 expert group on strengthening MDBs and chairman of the 15th Finance Commission, says he is expecting tangible progress on the MDB reform agenda in the upcoming meeting of finance ministers and central bank governors in Marrakesh, Morocco. In a telephonic interview with Ruchika Chitravanshi, Singh talks about risk mitigation for private capital in MDBs, priority areas for the next finance commission and whether it should be made a permanent body. Edited excerpts:
The G20 Delhi declaration welcomed the expert group’s report, but members are looking forward to volume two to get the whole picture. What are your expectations from the Marrakesh meeting where the report will be presented?
The Delhi declaration, which came after the submission of volume one, was very positive. The earlier fears about the reactions volume one will generate among the shareholders of multilateral development banks (MDBs) seem to have given way to more positive expectations. There is a greater consensus that MDBs need to be better, bolder, and bigger. Better in terms of a vastly improved model and ability to harness capital. Bolder in the sense of optimising the balance sheet and harnessing the capital adequacy framework. And bigger in terms of tripling the mandate and the available finances. We expect that on all these fronts, there will be tangible progress in Marrakesh.
What are the big challenges in the implementation of your recommendations?
There is much greater recognition among major shareholders that meeting today’s challenges requires significantly higher resources. Net transfers have remained static or come down. Shared prosperity has come down. Even to meet the original challenges, MDBs require vastly enhanced resources. And add to that, global challenges of climate (change) and pandemics. There is a compelling need for an orderly transition to lower reliance on fossil fuels. It cannot be business as usual. MDBs have to get out of their comfort zone. When it comes to harnessing private capital, there is a need to have risk mitigation in terms of what is appropriate -- gains should not be private if risk is public. Secondly, there should be proactive use of guarantees and mitigation on account of foreign exchange fluctuation. MDBs should explore hybrid capital and blended finance. We believe that these must be part of an integrated package with a more holistic approach to make MDBs better, bolder and bigger -- in that sequence.
What should be the priority for the next finance commission?
It is for the President to determine the priority. There are clearly some issues embedded in the Constitution, which include recommendations on a vertical and horizontal basis. The split of resources between the Union and the states is one of them. The finance commission also addresses urban local bodies and panchayats. The state finance commission should be constituted and it should augment the use of resources. In the post-GST period, we have proposed the application of the property tax in a significant way. The President has the latitude to include any other matter.
Do you think the finance commission should be made a permanent body?
I think that will require a greater consensus. It will require a change in the Constitution. Its recommendations are advisory, except on each recommendation it obligates the government to present an action taken report. In the broader context, we have abstained from giving any such recommendation. It should not be a self-perpetuating body. It, however, can have an ongoing secretariat that enhances the robustness of machinery and follows up on those recommendations. This will benefit all stakeholders.
Is there scope for looking at tax devolution shares between the Centre and the states? What should be the approach towards cess imposed by the Centre?
If you go back to history, not all resources were shareable. Then a portion of excise got shareable, and all tax receipts became shareable except the cess and surcharge. The finance commission does not have a view on this. The cess and surcharge as percentage of the divisible pool have gone up. Whether there should be a cap needs a debate. It is not a matter for the finance commission, but for Parliament to take a view. Over a period of time, the share of states has gone up.
Many developed countries seem to be diluting their green commitment, whereas developing countries have more urgent priorities. How do you feel about that?
Substituting the existing finances from needs of poverty to address issues of climate change would not be just and appropriate. I feel that developing countries owe it to themselves, to their obligations, not to divert or deflect (from green commitments).
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