REPORT ON STUDY TOUR TO INDIA COMMISSION ON REVENUE ALLOCATION Promoting an equitable society 17 TH DECEMBER 2012

COMMISSION ON REVENUE ALLOCATION 2 Outline Objectives Programme Lessons learned

COMMISSION ON REVENUE ALLOCATION 3 Study Tour Objectives Sharing of revenues between central government and states in India Devolution structures for effective service delivery Revenue generation structures for devolved government units; Public finance management structures for devolved government; Revenue collection arrangements for both central and devolved government units in India Revenue Sharing arrangements from national resource sectors Other issues

COMMISSION ON REVENUE ALLOCATION 4 Structure of Multi-Government in India

COMMISSION ON REVENUE ALLOCATION 5 Lessons for Kenya from structure of government  Need for 3 rd -level of government because county governments may not create equity at the county-level It took 43 years for them to introduce the 3 rd tier through the 73 rd and 74 th amendment of the constitution  Sharing resources equitably at the county-level should be one dimension of the “fiscal responsibility” parameter  Future marginalisation policies should use sub-county units in developing criteria for identifying marginalised areas

COMMISSION ON REVENUE ALLOCATION 6 Structure of State Government in India

COMMISSION ON REVENUE ALLOCATION 7 Lessons for Kenya from structure of government  India is a quasi –federal state just like Kenya-able to take advantage of the virtues of unitary government (reduce centre- state conflict)-President appoints state governors  Role of political parties: numerical power of the political parties matter-In India Chief minister is elected by legislators of the leading political party  Control of police: all police are selected and trained centrally by the union government. They can be posted anywhere in India. When in state they are under the state government  Civil service: Recruited centrally and can be transferred. When in a state that state pays salaries. BUT pensions are centrally administered by the union government

COMMISSION ON REVENUE ALLOCATION 8 Revenue Sharing in India  Sharing of revenue is mainly done by the Union Finance Commission (equivalent of CRA) which was formed in 1951  The commission is appointed every 5 years  The most recent is the 13 th Finance Commission established in 2007 its recommendations for the period  There are also State Finance Commissions (SFC) to make recommendations within each state  There is also a Planning Commission to spearhead national planning and administer planned expenditures  At the state level, there is the State Planning Board to assist the state government in formulating a development plan based on a scientific assessment of resources available to the state

COMMISSION ON REVENUE ALLOCATION 9 Lessons on Revenue Sharing for Kenya  CRA should strive to build public confidence  Need to create a maintenance fund/grant in future CRA’s recommendations- to manage all maintenance expenses for running the transferred institutions  Importance of credible data and research in recommendations  Coordination of planning from counties to the national level

COMMISSION ON REVENUE ALLOCATION 10 Lessons on Financial Management  India’s financial management experience led to financial indiscipline, high fiscal deficits etc. o In 2003, India enacted the Financial Responsibility and Budget management Act to institutionalise financial discipline and move towards a balanced budget through targets. o CRA could recommend similar targets e.g. fiscal deficit to county GDP of say 3%-provide warning to CRA and other stakeholders  Importance of ICT and need to move to “paperless operations” o BUT think about management of e-waste  Concurrent audits by different institutions  Use of bill system as opposed to cheque system

COMMISSION ON REVENUE ALLOCATION 11 Lessons on Revenue Enhancement  Clarity of taxation laws: Conflicting laws need to be harmonised  Data on tax handles is important: Need credible data on properties such as the GIS-based property database  Tax administration at the county-level: Need to reduce compliance and administrative costs, adequate human resources and use of ICT

COMMISSION ON REVENUE ALLOCATION 12 Lessons on Management of Mineral Resources  In India minor minerals are for states while major minerals belong to the union government  Inter-county conflict: Prepare for inter-county conflicts regarding water, forests etc. o Need dispute resolution mechanisms  Minerals resources based in poor counties: Local communities and counties should be compensated

COMMISSION ON REVENUE ALLOCATION 13 Lessons on Marginalisation  Marginalised groups in India are the scheduled tribes and scheduled castes (Dr Ambedkar)Dr Ambedkar  Should adopt a multi-pronged approach  Provision of resources to bridge the developmental gap- The equalisation Fund  Protective arrangements in terms of laws, commissions  Affirmative action, which provide positive preferential treatment in jobs, education and political positions o There are special hostels for students from scheduled tribes and scheduled castes

COMMISSION ON REVENUE ALLOCATION THANK YOU 14

COMMISSION ON REVENUE ALLOCATION 15 CRA Delegation at the Taj Mahal on 2 nd December 2012

COMMISSION ON REVENUE ALLOCATION 16 Part of the CRA Delegation in Discussion with Prof.Abhijit Sen, Member of the Planning Commission of India, on 3 rd December 2012

COMMISSION ON REVENUE ALLOCATION 17 CRA Delegation in discussion with Mr.Sumit Bose, Revenue Secretary, Ministry of Finance, on 3 rd December 2012

COMMISSION ON REVENUE ALLOCATION 18 CRA Vice Chair in discussion with H.E. Prof.Festus Kaberia, Kenya High Commission in India on 4 th December 2012

COMMISSION ON REVENUE ALLOCATION 19 CRA delegation in discussion with the Principal Secretary (Finance) of the Kerala State Government on 6 th December 2012

COMMISSION ON REVENUE ALLOCATION 20 Dr.Thomas Thoomkuzhy(GIFT), Com.Onyango, Vice Chair, Com.Prof.Munavu outside the Vellanad Gram Panchayat (Kerala State) on 6 th December 2012

COMMISSION ON REVENUE ALLOCATION 21 Vice Chair, Prof.Masai, Prof.Munavu and Dr.Sichei with a Kudumbashree (women group) in Vellanad Panchayat (Kerala State) on 6 th December 2012

COMMISSION ON REVENUE ALLOCATION 22 Chair lady of Attingal Municipality S.Kumar sandwitched between Prof. Munavu and the Vice Chair outside the municipality offices, 7 th December 2012

COMMISSION ON REVENUE ALLOCATION 23 Section of workers sorting cashew nuts at the CAPEX factory on 7 th December 2012

COMMISSION ON REVENUE ALLOCATION 24 Dr.Narayan(Director GIFT), Mr.John(Member State Planning Board in Kerala), Dr.Pinaki(NIPFP) and Vice chair at the last day meeting at the Gulati Institute of Finance and Taxation on 8 th December 2012

COMMISSION ON REVENUE ALLOCATION 25 Dr Bhimrao Ramji Ambedkar father of Indian Constitution came from one of the untouchable tribes. Earned doctorate degree in economics and law