Mandate and allocations -M Govinda Rao
The terms of reference of the 15th Finance Commission raise questions about constitutional propriety
It is not without reason that the presidential terms of reference (ToR) of the Fifteenth Finance Commission have raised questions, and the recent conclave of Finance Ministers of the southern States to discuss contentious issues in the ToR is only the beginning. In the months ahead more debate on this is likely. But the line by the media that this conclave was about concerns over the directive to use population data in the ToR from the 2011 Census, and not the 1971 Census that was used earlier, is an exaggeration.
To be fair, the meeting was called to discuss all contentious issues. Of course, for the southern States the issue of population was a point of concern and provided a common meeting point for the Ministers. But this was not the only area.
Using population data
Conceptually, general purpose transfers to States by way of tax devolution and grants are meant to enable them to provide comparable levels of public services at comparable tax effort. Public services have to be provided to the current population and not just the population of either the 1971 Census or the 2011 Census. The earlier Finance Commissions were issued the directive to use population data of 1971 based on a parliamentary resolution.
In fact, the Thirteenth Finance Commission expressed its frustration when it said: “We are bound by our ToR to take into account population figures for the States based on the 1971 Census” and assigned 25% weight to the factor. The Fourteenth Commission, after examining various factors to represent demographic changes, chose population figures of 2011 and assigned 10% weightage in addition to the 17.5% weightage given to the 1971 population data. The ToR for the present Commission could have been silent on which population figures should be used and avoided a controversy. In any case, from the perspective of economic objectives, there is no justification in using 1971 population data as a factor in the horizontal distribution of funds. From a political perspective, the use of 1971 population data will result in losers and gainers.
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