Finance Commission Damaging Federalism

The conclave of ministers from southern states, convened in Thiruvananthapuram at the initiative of Kerala Government to discuss the terms of reference of 15th Finance Commission, is definitely a meaningful step.

The meet was organized on the assessment that the moves of the Finance Commission will weaken southern states economically, and was aimed at registering their protest and chalking out future plans in the direction. The conclave, which was inaugurated by Kerala Chief Minister Pinarayi Vijayan, was attended by Puduchery Chief Minister V Narayana Swami, Andhra Pradesh Finance Minister Yanamala Ramakrishnudu, Karnataka Agriculture Minister Krishna Byre Gowda on behalf of the state chief minister and Opposition leader Ramesh Chennithala. No one represented Tamil Nadu, probably because of that government's political line of remaining friendly with the BJP. The general consensus put forward by the conference was that the terms of reference of the 15th Finance Commission have to be corrected. A decision was taken to prepare a detailed resolution with this demand. It was also resolved that another meeting will be held soon hosted by Andhra Pradesh government at Visakhapatnam, with the representatives of other states too. That meeting will prepare the final draft of a memorandum to be submitted to the Central Government and President.

The main demands put forward by the conference are: make no cuts in funds allocation for the states, impose no new restrictions on the right of states to draw loans, correct the proposal to give incentives instead of grant when states take up central government projects, drop the proposal to use 2011 census instead of 1971 census as basis for deciding states' funds entitlements in proportion to population. On a close review of the terms of reference of the 15th Finance Commission, the most striking aspect is that it weakens the federal structure of the country. With the implementation of GST, the role of states in revenue generation came to an end, making the very idea of state budgets almost irrelevant. Many had at that time itself raised the criticism that GST would destroy federalism. The idea of lowering the limit of loans that the states could avail, and imposing stringent conditions on them, was a move to curtail the rights of states. And the plan to replace central grants with incentives to be given by the centre, will reduce the predictability in the dynamics of states' economy.

For the southern states, the most harmful aspect is the concept of using 2011 census as the basis for states' allocations. From 1971 to 2011, the population share of southern states had shrunk from 22.1 per cent to 18.6 per cent. This happened thanks to these states' implementation of national programmes including mainly family planning programmes. In other words, it is a strange picture of losing funds with lower allocations, due to effective implementing national policy. Using 2011 census as the basis is also fraught with other risks than population fall, for southern states. When compared to northern states, the socio-economic and health indices of southern states are far higher. Thus the emerging picture will be of the southern states who lead in these aspects receiving less central funds. Again, achievements through administrative efficacy are going to be penalised. This perhaps is the most objectionable and dangerous aspect of the Finance Commission proposals.

The India envisioned by the Sangh parivar is a monolithic state under the control of a strong and all-encompassing central government. On the contrary, the vision enshrined in our constitution is of a de-centralized democratic structure based on a federal character - an abomination for the Sangh parivar. Naturally, they consistently endeavour, in different ways, to strike at its root. The proposals of the 15th Finance Commission are to be viewed as a continuation of such effort. All champions of democracy have to come out united against this move. And the ministerial conclave of southern states held at Thiruvananthapuram may be seen as an important step in that direction.