The terms of reference given to the 15th Finance Commission is highly controversial and might have serious repercussion for the nation.
Multiple other criterions that are being considered for fund distribution has also worried some states.
What is the core issue with the current Finance Commission?
Finance Commission - They are constituted every 5 years (or before) by the president to give its recommendations, which aren’t advisory in nature.
They recommendations pertain to the distribution of tax revenues between the Centre and states, and the allocation of the proceeds among states.
The 15th Finance Commission was constituted for giving recommendations for the period of 2020-25.
Usually, there is little mentioned about the Finance commission in the press and its recommendations seldom stir popular interests.
But the 15th FC has been hovering headlines since its constitution as it has been asked to consider the use of 2011 census for fund devolution.
Currently - The 1971 census is the marker, which was fixed to delink population from fund distribution in order to promote family planning.
Notably, population control initiatives didn’t proceed in an equal phase all over the country as some states like UP and Bihar lacked behind.
This is led to massive population expansions in some states and a more moderated increase in states like Kerala and Tamil Nadu.
Hence, it is a reality that using 2011 census data will penalise southern states, which have made considerable progress in population control.
This would also deny them reward for progress made in areas such as health, literacy, education and infrastructure.
What are recent political developments related to the 15th FC?
Recently, finance ministers of “AP, Karnataka, WB, Kerala, Punjab and Puducherry” met to discuss multiple issues concerning the 15th FC.
Apart from the population factor that has primarily upset these states, many other concerns regarding the terms referred to the 15th FC were also discussed.
Government has mandated the FC to probe the possibility of basing the resource distribution on certain fiscal performance factors.
Deepening of the GST net, promoting digital economy, controlling populist schemes, boosting revenue etc, are some of the clauses being considered.
This has troubled many states, as these aspects are vaguely definable and could easily be misused by the central government to bias allocations.
The concerned states hence plan to submit a joint memorandum to the president to press their concerns.
What are the varied opinions?
FCs has always struggled in balancing between ensuring equitable fund distribution among regions and fair fiscal federalism.
This issue had been raised as early as mid-1990s by the government of undivided Andhra Pradesh.
Some voice that population growth will come down if the States experiencing a higher population growth are punished with a lower share of Central funds.
But others have stated the difference in geography and economy as the primary reasons for differentiated contribution to the central taxes.
They hence argue that the richer states need to be more generous for equitable development to be achieved throughout the country.
