The interim report of the Fifteenth Finance Commission (FFC) has triggered a controversy, and there is nothing surprising about it.
Two years ago, when the FFC had decided to use population figures from the 2011 Census in place of the 1971 Census in the terms of reference (ToR), southern states expressed their displeasure. The FFC’s recommendations, based on those ToR, have reportedly resulted in the devolutions to the southern states except Tamil Nadu because of their lower population growth.
At a time when political relations between various parties are extremely bitter, and the economy is in a bad shape, neither the nation nor the Narendra Modi government can afford another full-fledged row.
The Finance Commission is a constitutional body that makes recommendations on the distribution of tax revenues between the Union and states, and among states. It also recommends the principles that should govern the grants-in-aid given by the Centre to states.
The FFC has slightly decreased the share of states in their share of the taxes collected by the Centre from 42 per cent to 41 per cent, but that is on account of the change in Jammu & Kashmir’s status from state to Union Territory. Few, if any, have problems with this. But using the 2011 Census meant that the share of southern states would go down.
The FFC was cognizant of the objections of southern states. In its report, it said, “The ToR enjoining to use the population data of 2011 created apprehensions that in the process those states that have achieved greater progress in reducing population since 1971 would be adversely affected. We have attempted to dispel these doubts by introducing a new criterion of total fertility rate (TFR) as a measure of demographic performance.”
While the criterion of ‘population’ has a weight of 15 per cent, that of ‘demographic performance’ is 12.5 per cent. ‘Area’ has a weight of 15 per cent, ‘forest and ecology’ 10 per cent, and ‘income distance’ 47.5 per cent. ‘Income distance’ is the difference between a state’s per capita income and that of the state with the highest per capita income.
It seems that the FFC’s claim that it has offset the use of 2011 Census with demographic performance has not convinced southern states. They continue to believe that they are being penalised for having done well on the population front.
From 1971 to 2011, the population of Hindi-speaking states of Uttar Pradesh, Bihar, Madhya Pradesh, and Rajasthan (including the three states carved out of them) grew 142 per cent, as compared to 86 per cent in the southern states.
It resulted in the increase of population proportion of northern states in the national population from 38.7 per cent in 1971 to 42.4 per cent in 2011. Concomitantly, for southern states, the proportion fell from 24.7 per cent to 20.7 per cent in the same period.
It needs to be noticed here that it was not just in terms of population but also prosperity that southern states have done better than the north. With ‘income distance’ having weight of 47.5 per cent, it translates into higher devolutions for poorer states which most northern states are.
And it is not just southern states that are unhappy. Odisha, which is likely to get Rs 36,300 crore from the Centre’s divisible poor for 2020-21, is also complaining.
Then there is also the issue of fiscal profligacy which neither the Fourteenth nor the Fifteenth Finance Commission took into account, whereas the Thirteenth Finance Commission had ‘fiscal discipline’ as a criterion with a weight of 17.5 per cent.
With no incentive to be fiscally prudent, many states have indulged in the dangerous populism of farm loan waivers. While debt remissions by any government, central or state, is bad, it is far worse when such decisions are taken by governments in poorer states like UP and MP. Therefore, it is unfortunate that Finance Commissions have given up the practice of incentivising state governments to adopt fiscally responsible practices.
When the economic situation is bad, and especially when it is coupled with massive unemployment, misery and frustration get expressed as quota stirs, regional movements, etc. Therefore, it would not be surprising if the perceived injustice to southern states snowballs into a major row.
It needs to be added here that the use of 2011 Census figures for delimitation would also result in similar protests from southern states. Till 2026, the number of parliamentary constituencies allocated to each state will remain as based on the 1971 Census. If, however, the 2011 Census is used, the north will see an increase in representation in Parliament.
The entire political class should take the concerns of southern states into account and resolve the contentious issues. The sooner, the better.
(The author is a freelance journalist. Views are personal)
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