STATES’ NEEDS, EQUITY, EFFICIENCY KEY FACTORS, SAYS NK SINGH

NEW DELHI: The 15th finance commission arrived at the new revenue-sharing mechanism between the Centre and states based on their specific needs and the principle of equity, its chairman NK Singh said in an interview on Thursday. The final report of the commission for 2021-26 has been made public and the Union government has accepted most of the recommendations.

The commission recommended the devolution formula at 41%, with a 1% downward adjustment (from 42% earlier) because of two new Union territories. It assigned a weight of 12.5% for demographic performance, which is the inverse of the fertility ratio.

“We have sought to balance need, efficiency and equity. The population reflects the need; the weight given to geographical area represents the need; the income-distance criterion,

namely the per capita income, represents the equity part. In what way are we rewarding efficiency? By giving weightage to the demographic criteria and also giving some weightage to the fiscal achievements to the state,” Singh said. The idea was to ensure that efficient states were not punished for their efficiency. Ahead of the report’s submission, some of the southern states were worried that their success in controlling population would work against them. In addition, the commission also used grants as a mechanism to achieve equity. “We subjected each of the states to very careful scrutiny, then we worked out what would be the minimum inescapable revenue expenditure, we compressed that and calculated the maximum amount of resources that they were likely to generate on a normative basis and concluded that this is the inescapable gap between the inescapable minimum expenditure and what is likely to be the optimum revenue. We have, therefore, assigned revenue-deficit grants,” Singh said.