15th Finance Commission mired in controversy

The ruling BJP is always seen as a party of North Indians despite all its efforts to create a pan-India image and the controversy over the terms of reference of the 15th Finance Commission has only given credence to the feeling that it is a party of the Hindi speaking cow-belt. The changed population criteria in the 15th Finance Commission to consider 2011 census for arriving at the population weightage for devolution of central funds instead of the earlier practice of 1971 census will definitely benefit North Indian states, which are ruled by BJP.

Even a state like Gujarat, which is among the leaders in industrialization, has not performed that well when compared to many of the southern states regarding social index and human resource development. This is because southern states particularly Kerala, Tamil Nadu and lately Karnataka have invested a huge amount of money in social development including education and health resulting in population control. The demand for a separate Dravida Nadu has raised its ugly head again in view of this development. But this is certainly not justified and southern states should be in a position to resolve this issue sitting across the table with the central government.

There is, however, some merit and justification in the argument put forth by Kerala, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana that they are being punished and meted out step-motherly treatment for having done comparatively a good job in social and human resource development in the past 3-4 decades. To top it all, this comes at a time when finances of some of the southern states like Tamil Nadu and Karnataka have been hit because of GST roll-out, which is a destination-based indirect tax benefiting more the consuming states rather than producing states. Andhra Pradesh has yet another grouse – denial of special category status, promised as part of the financial package in the face of bifurcation into Telangana and Andhra Pradesh. The mishandling of all these issues by the central government has contributed to the growing North-South divide and intensification of political protests in south India over the 15th Finance Commission.

The previous 14th Finance Commission had raised the share of the states around 32 percent awarded by the 13th Finance Commission. It had done this by transferring allocations to some of the central projects to states. This is a welcome development in the sense that states have more autonomy in spending resources in some of the projects, which otherwise used to be strictly monitored by the then Planning Commission. Inefficient states did not get second and third tranches of the allocation for such projects released without spending appropriately the first tranche in the designated centrally sponsored projects. This indirectly benefited efficient and developed states, which were in Southern and Western regions. The implementation used to be tardy in backward states, particularly in Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh and hence social projects were not getting fully implemented there. As a result, the states would remain backward.

Now reports suggest that with more allocation by the 14th Finance Commission these social development projects still do not get bridging revenue deficits. This money gets diverted in meeting wasteful expenditure on subsidies like the supply of free power and so on. The advanced states like Maharashtra, Gujarat, Tamil Nadu, Karnataka and Haryana, however, are happy with the increased allocation giving them more headroom and autonomy to implement the social development projects that used to come with strings attached earlier. This is yet another issue that 15th Finance Commission will have to look into.

If southern states have done better in social and human resource indicators, it is because they are better-administered states and the politicians are less corrupt and have some commitment to the people.  In sharp contrast, the administration in backward states is weak and corruption rampant, making implementation of developmental activities very difficult. This precisely is the reason for the states not making adequate progress. By starving funds to those states that are doing well, the Centre would only be distributing poverty rather than redistribution of wealth.

So the grouse of southern states are justified and rightly Karnataka chief minister Siddaramaiah, DMK leader M K Stalin and Kerala finance minister Thomas Isaac have been vocal on the issue. A successful containing of population growth through hard work cannot be punished with reduced allocations. If northern states have performed badly on this score it is because they have not spent the money allocated to them appropriately. Increased allocation to those north Indian states would tantamount to rewarding inefficiency.

According to V Bhaskar, who was joint secretary of 13th Finance Commission, Uttar Pradesh gains Rs 35,167 crore if 2011 population census was taken into account, while Andhra Pradesh will lose Rs 24,340 crore. Likewise, Bihar, Rajasthan, Madhya Pradesh gains Rs 32,044 crore, Rs 25,468 crore and Rs 14,735 crore respectively. Tamil Nadu, Kerala and Karnataka will lose Rs 22,497 crore, Rs 20,285 crore and Rs 8,373 crore respectively. This is precisely the reason that right from 7th Finance Commission, the statutory body is mandated to take 1971 population for computing state’s share. Even Parliament seats are fixed on these criteria. If the criteria are applied to Parliament seats as well in future, then southern states will be increasingly marginalized, politically as well as fiscally. Prime Minister Narendra Modi claims to be a votary of cooperative federalism and yet the central government has asked 15th Finance Commission to consider 2011 census without consulting states, especially southern states, which has a genuine worry.

The protest by southern states has certainly created some ripples at the Centre and some sort of assurance is now forthcoming from the Centre that the 15th Finance Commission will certainly look into their concern that they would not be penalized and some weightage would be given for the good work done by them.

(The author is a senior journalist and former Editor of Press Trust of India.)












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