Econ Mom as the Finance Commission, Hubby as the Planning Commission

The topic of pocket money has suddenly become fairly hot in the Phadke household. I am frankly, not too sold out about it. Whenever Lil One needs funds (normally Rs. 10 to buy Lays), I give it to him and that pretty much is that. Since I am the single window for fund disbursal, I have an automatic tab on the frequency with which he eats Lays/ chocolates/ ice-creams. And hold on. I am NOT a control freak. I am just…mom.

However, some parent in Lil One’s classroom has started giving pocket money and the trend has caught on. And (and this is REALLY important), Greg, the wimpy kid (groan!), apparently gets “mom bucks” too. Sigh! Don’t know why I am so proud of being mom to a reading kid. I sometimes pine for those non-reading, non-argumentative types.

So, apparently, all kids in the class are currently divided into those with the funds and those without. Lil One has been increasingly vocal about “always” being part of the have-nots and the deep image beating he’s taking at school.

“But you always get the money when you want it!” I tried to reason.

“Yes, but since my friends get pocket money, they don’t have to ask their mom every time they buy wafers. I have to. Also, many of them save their money and then they are going to put those savings into a bank account.”

Hmm. I raised my eyebrows at Hubby, who gave a tiny thumbs up from the other end of the room. “Ok, but it’s only Rs.10 a week. And it’ll be given weekly. No advance (Lil One didn’t really understand this bit but it sounded superbly official and he nodded, impressed with my financial intuition). And you have to do a small chore for me every week to earn your money.” Lil One was digesting this new information as well as the new official avatar of mommy, when Hubby piped in with a wink, “And if she is really being stingy, I’ll try to chip in. Ok? Umm…additional Rs.10 from my end occasionally if you are good! Of course, with mommy’s permission.”

“Yaay!”yelled Lil One and rushed downstairs to inform all about finally having joined the elite “haves” club.

Though I really smiled at that typical last sweet offer by Hubby, Econ Mom was uncomfortable. “Occasionally, if you are good” is BAD news. Period.

Being fond of economics as well as politics, Econ Mom is kind of passionate about the fiscal federalism structure in India as governed by officially the Finance Commission, and over a period of time, also by the Planning Commission.

The Finance Commission was set up by an act of the Constitution; the makers of our Constitution were acutely aware that States would need more funds for their development whereas their control over revenue sources, such as taxes, was typically restricted. Hence, the Finance Commission was to be set up by the President, every 5 years, to decide how much of the pool of the Central taxes could be shared with the states. The Finance Commissions have always worked out a formula based devolution of taxes; this year the Fourteenth Finance Commission (FFC) increased the States’ share in the Central tax pool from 32% to 42%. (You can read more about this in an earlier blog of mine dedicated to the FFC.)

However, the (erstwhile) Planning Commission was just an arm of the Government and not really a constitutional authority. It was set up as an independent think tank to drive planning goals for the development of the country. Nowhere do its guidelines mention disbursal of funds to drive the plans as a part of its objectives.

However, as the history of our Center-State relations goes, the Planning Commission also became an authority to sanction “Plan Support” to State Governments in accordance with the Plan objectives or schemes mentioned in their Economic Surveys. Now, the disbursals by the Planning Commission are not really in accordance with any formula; rather, they were need-based and hence, often found to be driven politically rather than economically.

If one examines the trends in the disbursals of the Finance Commissions, one finds that they are often progressive in nature; poorer states get a bigger share of the Central pool of taxes. However, the same cannot be said of the disbursals by the Planning Commission; in fact casual observation of the data suggests to me that more funds are normally given in Plan Support to those State Governments which are aligned to the National Government.

Dissolving the Planning Commission and setting up of the NITI took the country by political storm with plenty of observers interpreting the event to be a mistrust of Nehruvian institutions by the NDA. And whilst that may be true (I don’t really have a comment on that), the fact is that unless the Commission stood completely dissolved, it would have been very difficult to get it back to the format it was originally designed for. A think tank. Not an additional fund-tank.

It was a good move and frankly, the only move to solve the issue. Fund disbursal has to be rule-driven. Only then is it possible to drive sound economic outcomes in a transparent manner.

Lil One came rushing home. “Mom, I’m so, so, so thrilled about you giving me pocket money. Thank you!”

“You’re welcome, honey. But..”

“Don’t tell me you are cancelling it. You said yes! And you were convinced!”

“Of course I am going to give you your pocket money. It’s just that I’m not okay with Dad giving you that additional bit.”

“Oh! That’s fine with me, Mom. I don’t really need that additional bit.”

And so that’s that. Hubby is now NITI, whereas I continue with being the Finance Commission.