What is the issue?
- 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.
Source: Indian Express
