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Unveiling the Role and Responsibilities of the Chairman of the 12th Finance Commission

The Chairman of the 12th Finance Commission plays a pivotal role in shaping the economic landscape of the nation. In this article, we will delve into the responsibilities and significance of this key position, shedding light on the impact it has on fiscal policies and financial planning.

Dr. Ranagarajan, a macroeconomist by training and a former professor at New York University, held positions as deputy governor and governor of the Reserve Bank of India (RBI), the governor of two states, the chairman of the 12th Finance Commission, a member of the Rajya Sabha, and the chairman of the Economic Advisory.

	Aspect	Details
	Name of the Commission	12th Finance Commission
	Established	November 2002
	Chairman	Dr. C. Rangarajan
	Tenure	2002–2004
	Key Members	- Dr. D.K. Srivastava (Member) - Dr. A. Vijaya Kumar (Member) - Dr. Amaresh Bagchi (Member)
	Appointed By	President of India
	Objective	Recommend sharing of tax revenues between the Center and States and principles for grants-in-aid.
	Key Recommendations	- Revenue Deficit Grant to reduce fiscal imbalance. - Debt consolidation for states. - Tax reforms to improve resource mobilization.
	Total Grants Proposed	₹1,42,640 crore over five years (2005-2010).
	Period Covered	2005–2010
	Special Focus	Improving fiscal discipline at both central and state levels.
	Impact of Recommendations	- Enhanced states’ fiscal autonomy. - Promoted efficient allocation of resources.

Understanding the 12th Finance Commission:

The 12th Finance Commission of India was established on November 1, 2002, with the primary goal of recommending the distribution of net proceeds from shareable taxes between the Union and the states. Dr. C. Rangarajan, a veteran economist, chaired it. The commission’s recommendations covered the period from 2005 to 2010. Here are some key points from the commission’s report:

• Macro-economic Stability: The commission aimed to reduce the total fiscal deficit for the Centre and states to 3% of GDP by 2009-10 and to increase the total tax-GDP ratio to 17.6%.
• Distribution of Union Tax: It was recommended that the states’ share in total shareable central taxes be fixed at 30.5%. If states levied sales tax on sugar, textiles, and tobacco, this share would reduce to 29.5%.
• Grants to Local Bodies: A total grant of Rs. 20,000 crores for Panchayati Raj institutions and Rs. 5,000 crores for urban local bodies was recommended for the period of 2005-09.
• Calamity Relief Fund: The commission recommended continuing the Calamity Relief Fund scheme, with a size of Rs. 21,333 crores for 2005-10, contributed by the Centre and states in a 75:25 ratio.
• Grants-in-Aid to States: For 2005-10, a non-plan revenue deficit grant of Rs. 56,856 crores was recommended for 15 states, and a total grant of Rs. 10,172 crores for 8 educationally backward states.

Economic Reforms:

The Chairman actively participates in formulating policies that promote economic growth, stability, and efficiency. This involves providing recommendations on structural reforms that can positively impact the fiscal health of the nation.

Significance for Economic Growth:

Dr. Rangarajan would come across as distinguished and insightful economist. He is a calm and a composed person, showing his vast experience in economic policy and academia. He feels that the economy required structural reforms to enhance productivity and sustainable growth.

The Chairman of the 12th Finance Commission fosters fiscal discipline, encourages resource efficiency, and addresses the unique financial challenges faced by different states to promote economic growth. The Chairman’s recommendations contribute significantly to the country’s overall economic development.

The Chairman of the 12th Finance Commission is a key figure in shaping the fiscal policies that govern our nation. Through resource allocation, tax revenue sharing, debt management, and economic reforms, the Chairman plays a crucial role in fostering a balanced and sustainable economic environment. As we navigate the complexities of fiscal governance, the impact of the Chairman’s recommendations resonates across the diverse landscape of India’s economic development.

The Present Status of C.Rangarajan is that, he serves as the Chairman of the Madras School of Economics. He continues to contribute to the field of economics through teaching, research, and advisory roles.

The reference of the above article is taken from, Finance Commission of India: ‘Composition of the 12th Finance Commission.’