Divided we fall: on the 15th Finance Commission

💥The debate on the Finance Commission’s terms of reference needs reshaping💥

Prime Minister Narendra Modi thinks vested interests are behind the “baseless” allegation that the terms of reference of the 15th Finance Commission are biased against certain States or a region. He did not name the region, but he was clearly responding to growing clamour from the southern States for a rethink on the parameters for the Commission to determine revenue-sharing between the Centre and the States. The southern States are concerned that the Commission is switching from the 1971 Census to the 2011 Census. This means States that have done relatively better to control population growth could see their allocations, as a fraction of the total resources, reduced. However, speaking in Chennai Mr. Modi said a State like Tamil Nadu would actually benefit from the Commission’s mandate as the Centre has mooted incentives for those who have done well on population control. That the Prime Minister has had to wade in to try and manage a controversy, days after Finance Minister Arun Jaitley had termed it as ‘needless’, signals the Centre’s concerns about the narrative turning against the BJP ahead of the Karnataka election.

One will have to wait till October 2019, when the Finance Commission’s final recommendations come in, to assess the actual impact on States’ cash flows, but framing the issue as a southern vs northern States debate is not constructive. The 14th Finance Commission had also given a 10% weightage for the 2011 Census in its calculations and there was no discernible impact on allocations to the more populous States such as Uttar Pradesh and Bihar. Also, there are other States whose share of India’s total population has declined between 1971 and 2011, including West Bengal, Goa, Himachal Pradesh and Punjab. Finally, it is misleading for State governments to assume that all positive changes in demographics are a result of their own actions or policies — there are a variety of factors at play when individuals make decisions about procreation. For the Commission, it is more critical to ensure that resources reach those who need them the most and that the genuinely needy are not deprived, wherever they may be. States may spend their energies better by seeking more clarity on the Commission’s other terms of reference, especially the incentives proposed for shunning populism and the move to give the Centre a larger share of the resources to build the New India it envisions by 2022. Whether mid-day meals for children or employment schemes for the rural poor amount to populist pandering is an extremely subjective call. And the Centre’s attempt to increase its share from the divisible pool of resources from the present 58% is something that should concern all States, whether populous or not.

To Download this editorial in PDF version CLICK HERE