THREE non-BJP ruled southern states and Union Territory Puducherry Tuesday expressed serious reservations on the Terms of Reference stipulated by the Centre in the 15th Finance Commission for devolution of funds to states. At a conclave of finance ministers of southern states in Thiruvananthapuram, Kerala, Karnataka, Andhra Pradesh and Puducherry said that the ToR contradicted the principles of federalism and more non-BJP ruled states would be involved to debate the issue.
The ToR, the states argued, would lead to states with higher population bagging a larger share of tax resources and a loss for states that have pursued population control.
Responding to these concerns, Union Finance Minister Arun Jaitley, in a statement, denied bias and said that Finance Commissions use both qualitative and quantitative criteria such as population and income level to decide financial needs and allocations to states.
After the meeting, Kerala Finance Minister Thomas Issac said the issue is not a dispute between the South and North. Isaac said the terms of reference of the 15th FC are a threat to the federal system.
“There is a deliberate attempt to cut down tax devolution to the states and forcibly impose conditions on the states. The states have to get consent from the Centre for borrowing funds from the market. The Finance Commission is a Constitutional structure to share finances of the country between the Centre and the states. What is being given from the FC should not be depicted as largesse of the Centre,’’ he said.
The next meeting will be held in Visakhapatnam early next month, in which Delhi, West Bengal, Odisha and Punjab are also expected to take part. There will also be attempts to bring in Telangana and Tamil Nadu for the next conclave, said Isaac. Today’s meeting was attended by Karnataka, Andhra and Puducherry, apart from host Kerala.
While the terms of reference for the 14th Finance Commission were to use the 1971 Census data for determining devolution of taxes, duties and grants-in-aid; the Central government asked the 15th Finance Commission’s ToR to use the 2011 data. Southern states argue that this is expected to result in higher devolution of resources to states whose population have grown faster since 1971.
Trying to to allay fears of these southern states, Jaitley said that the ToRs of 15th FC rightly balance both the “needs” represented by latest population and “progress towards population control” very well. A term of reference has also been added to recognize states which have done well on population control and to achieve replacement rate of population growth, Jaitley said.
Jaitley said a needless controversy was being sought to be created that the ToR was loaded against any particular region of the country. “Nothing could be further from truth,” he said. The share in Central taxes is allocated to states based on recommendations made by the Commissions to help them provide a minimum standard of services to their people, he said.
“This calls for assessing states’ ‘needs’ on rationale and equitable basis. FCs use appropriate criteria to assess true needs of States. Population proxies very well for the needs of the people in quantitative sense. Another criterion, the Income Distance, which captures very well relative poverty of people in the States, is used to assess qualitative needs. These two parameters allocate more resources to the populous and poorer States, which need additional funds for providing education, health and other services to the people, which own resources of these poorer states may otherwise not allows,” Jaitley added.
In determining states’ share of taxes, the 14th Finance Commission had given 17.5 per cent weight to 1971 population and 10 per cent weight to 2011 population. A 50 per cent weight was given to income distance, which measures the distance of state’s income from the state having the highest income. The remaining weight was given to smaller states area, forest cover and general issues.
Although the 14th Finance Commission had no specific mandate for using 2011 Census, Jaitley said, it rightly used the 2011 Census to capture the demographic changes since 1971 to make a realistic assessment of the needs of the states. The 14th Finance Commission had allocated a 42 per cent share in Central taxes to states.
But Karnataka Agriculture Minter Krishna Byre Gowda, who is also a member of the GST council, said that all progressive states have been disadvantaged. “We endorse the opinion that the freedom ought to have vested with the finance commission to arrive at rightful formula for allocation rather than restrict the constitutional right of the finance commission through the terms of reference.’’
He said that under the incentives clauses, states which will reach the replacement fertility rate of 2.1 will also get these incentives. “That means those states which have already crossed the replacement fertility rate below 2.1 per cent would not get the incentives. That means, all the progressive states, which did their nationalistic duty called by the nation to bring down the population rate now or which did bring down the population, are not only going to lose from the decision to use the population data of 2011, instead of population of 1971, as the base for tax devolution.’’
Gowda said highly discretionary and subjective provisions were created in the ToR. “The state legislatures and the electorate are the deciders on what is profligacy or what is a not profligacy. Elections would deliver that message and the constitutionally that mandate rests with the legislatures and the electorate. Curtailing those rights are against the Constitution,’’ he said.
“If you are making progress on your own, you should not be getting incentives. That would end up in penalizing progress,’’ said Gowda, referring to the terms of reference of the Commission.
Said Puducherry Chief Minister V Narayanaswamy, who is also handling the finance portfolio: “The Centre is not giving incentives to states which have population control. This is the biggest anomaly. The PM says under-developed states have to be developed. But development in such states should not be at the cost of developing states.’’
Andhra Pradesh Finance Minister Yanamala Rama Krishnudu said the Central Government should not be a dictator while deciding the ToR. “As per the Constitution, the Commission has to establish its own procedure and own way of doing things as far as distribution of revenue to states is concerned. But here the Government of India has given the terms of reference. That is why we are opposing it. These terms are likely to suppress the state’s financial powers,” he said.
Earlier, inaugurating the conference, Kerala Chief Minister Pinarayi Vijayan said that the “conspicuous bias” in the ToR would prevent the Commission from fulfilling its constitutional responsibility. “Therefore, it is only proper for all of us to appeal to the Union Government to reframe the terms of reference of the 15th Finance Commission,” Vijayan added.