Funds allocation


The growing clamour for revising the terms of reference of the 15th Finance Commission for satisfactory allocation of funds from the central pool for the resource rich states have been growing particularly under the NDA-government during the past four years. This is mainly for the reason that some of the resource rich states that have been contributing to the central pool more than their capacity have aspirations for higher funding for the benefit of their populations. It is not only the clamour of the southern states but also from the north and north-eastern region because of the fact that their resources particularly water and ecological reserves contribute in a big way for the benefit of the central and north eastern states in terms of agricultural and economic advancements since ages. This is also true that the resources have never been taken into consideration for allocation of funds to these states in the past 70 years after India gained independence. But there is a paradox that central government has a perception that what it has been doing in terms of financial allocation was justifiable by its own yardstick and understanding. For this reason, Prime Minister Narendra Modi thinks that vested interests are behind the ‘baseless’ allegation that the terms of reference of the 15th Finance Commission are biased against certain states or a region. He has not named the region, but he was clearly responding to growing demand from the southern states for a rethink on the parameters for the Commission to determine revenue-sharing between the centre and the states. The southern states are concerned that the Commission is switching from the 1971 Census to the 2011 Census. This means states that have done relatively better to control population growth could see their allocations, as a fraction of the total resources, reduced. Speaking in Chennai Narendra Modi said a state like Tamil Nadu would actually benefit from the Commission’s mandate as the centre has mooted incentives for those who have done well on population control. That the Prime Minister has had to wade in to try and manage a controversy, days after Finance Minister Arun Jaitley had termed it as ‘needless’, signals the centre’s concerns about the narrative turning against the BJP ahead of the Karnataka elections. But the centre has to bear in mind that elections in one state or the other should not have a bearing on the allocation of funds to the states from the central pool. While the discussions terms of reference of the Finance Commission go on, one will have to wait till October 2019, when the pane’s final recommendations come in, to assess the actual impact on states’ cash flows, but framing the issue as a southern vs northern states debate is not constructive. The 14th Finance Commission had also given a 10 percent weightage for the 2011 Census in its calculations and there was no discernible impact on allocations to the more populous states such as Uttar Pradesh and Bihar. Besides, there are also other states whose share of India’s total population has declined between 1971 and 2011, including West Bengal, Goa, Himachal Pradesh and Punjab. Finally, it is misleading for state governments to assume that all positive changes in demographics are a result of their own actions or policies – there are a variety of factors at play when individuals make decisions about procreation. For the Commission, it is more important to ensure that resources reach those who need them the most and that the disadvantaged people are not deprived, wherever they may be. The states may spend their energies better by seeking more clarity on the Commission’s other terms of reference, especially the incentives proposed for shunning populism and the move to give the centre a larger share of the resources to build the New India it envisions by 2022 may not go well down with the former. At this stage, mid-day meals for children or employment schemes for the rural poor amount to populist pandering cannot be considered as an extremely subjective call. Keeping in view the aspirations of the people across several states, centre’s attempt to increase its share from the divisible pool of resources from the present 58 percent is something that should concern all states and regions, whether populous or not. Ultimately, the centre will have to sort out the issues with the states through a process of dialogue for satisfying the aspirations of the people.