"There are three institutional reforms that would help the functioning of fiscal federalism in India. The first would be if the finance commission were made a permanent body, as it is in Australia," World Bank said in a report on state fiscal reforms released on Tuesday. The move would improve coordination and state-level fiscal data collection, it said.
Supporting World Bank's views, NIPFP director Govinda Rao said the finance commission should be made a permanent professional body, which would carry out proper monitoring of policy implementations in states.
At present, the finance commission is constituted every five years to work out the devolution formula for sharing tax revenues between the Centre and states.
Rao said every five years, bureaucrats and economists are appointed in the finance commission on deputation. This restricted the commission to have adequate information on states and hence carry out proper analysis of their requirements.
Advisor to Finance Minister Parthasarathi Shome, however, said there should be greater analysis on why there was a need to have a permament finance commission.
World Bank said there was a need to have a single agency that can compile state level fiscal data to provide credible reporting of the performance of the states against the targets fixed for them.