Delhi, don’t forget, we’re a federal Union

Prime Minister Narendra Modi has said the concern of southern states has no basis and that they might actually gain from the incentives proposed for states which have made progress in population control. (DH file photo)

A number of states have expressed concern over the possibility of a decline in their share of tax revenues if and when the recommendations of the 15th Finance Commission are implemented. The commission’s recommendations will be the basis for revenue sharing between the Centre and the states during the period 2020-25. The concern has arisen from the terms of reference (ToR) given to the commission, which make the 2011 census the basis for the division of funds and not the 1971 census, as has been the case since 1976. States that have successfully controlled population growth during the 1971-2011 period will, therefore, find their share reduced. The southern states, including Karnataka, have gotten together to oppose the ToR and their finance ministers met recently in Thiruvananthapuram. But it is not a South versus North issue as states like West Bengal, Himachal Pradesh and Punjab also would lose if the 2011 population criterion is used. The southern states have wisely decided to invite other states across India to join them on the issue.

The states which will stand to gain from the change in the terms of reference are states like UP and Bihar, where the population increase was faster than in other states. It is unfair to penalise some states for their relative success in controlling population growth, which is a national goal and reward others which have failed to achieve such success. Though finance commissions try to shift resources from more developed areas to less developed ones, effecting it on the basis of criteria like population growth is wrong. There is already an imbalance in the sharing of revenues among states. While Karnataka gets 47 paise for every rupee it gives to the national exchequer, UP gets one rupee and 79 paise for its contribution. This imbalance should not be aggravated. 

Prime Minister Narendra Modi has said the concern of these states has no basis and that they might actually gain from the incentives proposed for states which have made progress in population control. But this is doubtful because the gain from the incentives is likely to be much less than the losses. There are some other terms of reference also which are seen to be unclear or unfavourable by states. It is felt that there is a move to make a bigger share of funds available for central government schemes at the cost of state schemes. Reduction of “populist expenditure” is another priority proposed, and the commission is expected to define what constitutes populism. These issues need to be addressed. If the mechanism for sharing and devolution of resources is seen to be biased against some states, it will create unhealthy divisions and damage the federal set-up. 

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