15TH FI­NANCE COM­MIS­SION

Pol­i­tics over pop­u­la­tion

Down to Earth - - FRONT PAGE - KUNDAN PANDEY NEW DELHI

SET­TING UP of the Fi­nance Com­mis­sion al­ways makes the states un­easy. For this is the con­sti­tu­tional mech­a­nism to share the Cen­tral tax pool with states. But the 15th Fi­nance Com­mis­sion has let out a parox­ysm of po­lit­i­cal protests, par­tic­u­larly by the south­ern states, lit­er­ar­ily di­vid­ing the states on north­south line. At the core of this lies a change in the base year for pop­u­la­tion fig­ure that sig­nif­i­cantly de­cides the states’ tax rev­enue share.

The Union govern­ment has rec­om­mended in the Terms of Ref­er­ence (tor) for the Com­mis­sion that it should con­sider the Cen­sus 2011 fig­ure in­stead of the es­tab­lished and man­dated prac­tice of us­ing the 1971 Cen­sus. But, this “first” has not gone well with many states. They fear it would lead to a sig­nif­i­cant loss in tax pool share. More­over, they see it as a pun­ish­ment for en­forc­ing the Na­tional Pop­u­la­tion Pol­icy ef­fec­tively. Ker­ala be­came the first state to op­pose this change. In a mem­o­ran­dum pre­sented to the Com­mis­sion in May, the state govern­ment says that the change in

base pop­u­la­tion fig­ure would pe­nalise hor­i­zon­tal share of taxes to those states which took suc­cess­ful ini­tia­tives to reach re­place­ment rates of pop­u­la­tion in ac­cor­dance with the Na­tional Pop­u­la­tion Pol­icy. The Com­mis­sion, headed by for­mer par­lia­men­tar­ian N K Singh, will sub­mit its rec­om­men­da­tions by Oc­to­ber 31, 2019. Th­ese rec­om­men­da­tions would come into ef­fect from April 1, 2020 for the next five years.

Po­lit­i­cal ram­i­fi­ca­tions

It has be­come such a po­lit­i­cal hot po­tato that Prime Min­is­ter Naren­dra Modi took to Twit­ter to clarify that “a base­less al­le­ga­tion is be­ing made about the tor of the 15th Fi­nance Com­mis­sion be­ing bi­ased against cer­tain states or a par­tic­u­lar re­gion” in April while declar­ing that states con­trol­ling pop­u­la­tion would be get­ting in­cewwn­tives. The Com­mis­sion is yet to fi­nalise the for­mula.

For the Com­mis­sion, pop­u­la­tion has been a con­stant pa­ram­e­ter in de­cid­ing the states’ share in the tax pool. In the 12th and 13th Com­mis­sions, pop­u­la­tion got 25 per cent weigh­tage while the 14th Com­mis­sion gave it 17.5 per cent weigh­tage. Other pa­ram­e­ters in­clude in­come dis­tance, for­est cover, ge­o­graph­i­cal area, fis­cal dis­ci­pline and tax ef­forts be­sides oth­ers which change ac­cord­ing to the pri­or­ity of gov­ern­ments. Like, the 15th Com­mis­sion tor re­moves the for­est cover pa­ram­e­ter, which was in­cluded for the first time in the 14th Com­mis­sion. In­stead, the lat­est Com­mis­sion has been asked by the Union govern­ment to con­sider the fi­nan­cial needs of it keep­ing in mind the chal­lenges of cli­mate change, de­fence and in­ter­nal se­cu­rity, in­fra­struc­ture de­vel­op­ment and ex­pan­sion of and ef­fec­tive rail­ways.

Till 1976, the rule was that any de­ci­sion fac­tor­ing pop­u­la­tion was based on the pre­ced­ing Cen­sus. Pop­u­la­tion is a base pa­ram­e­ter for the elec­tion of the Pres­i­dent, demarcation of Lok Sabha seats and also al­lo­ca­tion of Cen­tral un­tied fund to states. How­ever, to in­cen­tivise pop­u­la­tion con­trol af­ter the coun­try re­ported the high­est ever pop­u­la­tion growth dur­ing 1961-71, the Union govern­ment brought in a change in this norm. The Indira Gandhi-led Congress govern­ment in 1976 froze the 1971 Cen­sus fig­ure as the base­line fig­ure through the in­fa­mous Emer­gency pe­riod 42nd amend­ment to the Con­sti­tu­tion.

This change was valid till Cen­sus 2001. How­ever, the Na­tional Demo­cratic Al­liance govern­ment led by Atal Bi­hari Va­j­payee ex­tended this to the first Cen­sus af­ter 2026 through the 84th amend­ment to the Con­sti­tu­tion. Go­ing by this con­sti­tu­tional norm, pop­u­la­tion fig­ure of the Cen­sus con­ducted in 2031 should be the base for any pol­icy change. The rea­son for the re­cent change in pa­ram­e­ter is still not known and that is adding fuel to the al­ready rag­ing de­bate.

K K Ge­orge, an econ­o­mist and chair­man of the think-tank Cen­tre for So­cio-Eco­nomic and En­vi­ron­men­tal Stud­ies (cses), says, “This clause in the tor goes against the as­sur­ance given in Par­lia­ment with a view to en­cour­age con­trol on pop­u­la­tion which was a na­tional goal then and re­mains one now as well. The Na­tional De­vel­op­ment Coun­cil (ndc) ap­proved this pol­icy in its 33rd meet­ing in 1979 and re­it­er­ated it in the Na­tional Pop­u­la­tion Pol­icy in 2000.”

The last Com­mis­sion sig­nif­i­cantly in­creased the share of states in Cen­tral tax pool from 32 per cent to 42 per cent (see ‘Cen­tral con­cerns’, Down To Earth, 1-15 Fe­bru­ary, 2016). This is an­other rea­son why the states fear that if pop­u­la­tion pa­ram­e­ter is changed they would suf­fer a big­ger loss of share as the base­line al­lo­ca­tion is al­ready higher than ear­lier. And they have a rea­son.

Un­rav­el­ing the fi­nan­cials

Take the ex­am­ple of Union bud­get of 2016-17. The amount de­volved from Union govern­ment to states un­der the head ‘De­vo­lu­tion of States’ share in

The Cen­sus 1971 fig­ure that the Indira Gandhi-led govern­ment froze in 1976 as the base­line through the in­fa­mous Emer­gency pe­riod 42nd amend­ment to the Con­sti­tu­tion has been used till now to de­cide the tax rev­enue share due to the states by the Cen­tre

Taxes” in 2016-17 was 6,08,000 crore. As per the rec­om­men­da­tion of the 14th Com­mis­sion, 17.5 per cent weigh­tage was given to the 1971 pop­u­la­tion. It means 17.5 per cent of to­tal money, which is 1,06,400 crore, was shared with states based on their share in to­tal pop­u­la­tion in 1971.

Now, take the ex­am­ple of Ker­ala. The state’s pop­u­la­tion was 3.89 per cent of to­tal pop­u­la­tion of In­dia in 1971. Thus, it will get sim­i­lar per­cent­age amount which is about

4,139 crore. If the amount would have been dis­trib­uted as per Cen­sus 2011, Ker­ala’s pop­u­la­tion was 2.76 per cent of to­tal In­dian pop­u­la­tion. If the same amount of tax share gets di­vided as per Cen­sus 2011, Ker­ala will get around 2,937 crore, a loss of 1,202 crore. Ker­ala govern­ment ar­gues that this is a pun­ish­ment for en­forc­ing the na­tional pol­icy on pop­u­la­tion.

The fi­nan­cial losses with this change be­come clear when one looks at the change in pop­u­la­tion since 1971. Tamil Nadu (75.12 per cent) and Ker­ala (56.4 per cent) hav­ing low­est decadal pop­u­la­tion growth rate be­tween 1971 and 2011 will suf­fer the most if Cen­sus 2011 is used as the base pop­u­la­tion and all other pa­ram­e­ters re­main the same. In th­ese years, growth rate of In­dia’s pop­u­la­tion is 120.8 per cent. Leav­ing Te­len­gana, all four south­ern states’ pop­u­la­tion share be­tween 1971 and 2011 has de­clined from 22.01 per cent to 18.16 per cent. So, th­ese states will get 18.16 per cent of to­tal money al­lo­cated for pop­u­la­tion in­stead of 22.01 per cent if the old pa­ram­e­ter is ap­plied.

cses es­ti­mated how states would be im­pacted if the pop­u­la­tion base­line is changed. This study di­vided all states in two cat­e­gories: winners and losers. Losers in­clude all 10 states whose pop­u­la­tion share has de­clined from 1971 to 2011. They in­clude all the south­ern states and Odisha, West Ben­gal, Pun­jab, As­sam, Hi­machal Pra-

Com­mis­sion ex­pressed its frus­tra­tion and said, “We are bound by our tor to take into ac­count pop­u­la­tion fig­ures for the states based on the 1971 Cen­sus.”

The 14th Com­mis­sion in­no­vated to de­flect this con­di­tion. It gave 17.5 per cent weigh­tage to the 1971 Cen­sus pop­u­la­tion fig­ure and 10 per cent weigh­tage to the 2011 Cen­sus, call­ing it “de­mo­graphic in­di­ca­tors”. Pronab Sen, Pro­gramme Di­rec­tor at In­ter­na­tional Growth Cen­tre, says this change did not nec­es­sar­ily mean fi­nan­cial loss for the 10 states that ex­pe­ri­enced a de­cline in pop­u­la­tion from 1971 to 2011. de­vo­lu­tion and grants are meant to en­able th­ese states to pro­vide pub­lic ser­vices to cur­rent pop­u­la­tion. Even us­ing 2011 pop­u­la­tion is in­ac­cu­rate; it should be present pop­u­la­tion.” Though, he adds that peo­ple draft­ing the tor for the Com­mis­sion see tax de­vo­lu­tion as a char­ity. “The tor asks to use per­for­mance in­di­ca­tors for the states while for­get­ting the same for the Union govern­ment. Th­ese terms go against the con­sti­tu­tional val­ues and also against the spirit of fed­er­al­ism.”

Even the ear­lier Fi­nance Com­mis­sions raised un­com­fort­able ques­tions over this rigid base­line con­di­tion. Rao says that the 13th Fi­nance desh and Goa. On the other hand, the winners are Ut­tar Pradesh (will gain the high­est), Ra­jasthan, Bi­har, Mad­hya Pradesh and Haryana. It shows that many eco­nom­i­cally un­der­priv­i­leged states like Odisha, West Ben­gal and As­sam would be left with less fi­nan­cial re­sources while rel­a­tively pros­per­ous states like Ma­ha­rash­tra and Gu­jarat will fur­ther gain.

How­ever, there are voices of sup­port to the change. M Govinda Rao, Di­rec­tor, Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy and for­mer mem­ber of the Eco­nomic Ad­vi­sory Coun­cil to the Prime Min­is­ter, says, “Trans­fers to states by way of tax

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