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‘Population' and ‘Income Distance' decide resource allocation: Jaitey tells Southern States

By Vikas
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    With the Southern States expressing concerns over the Terms of Reference (ToR) of the 15th Finance Commission (FC), Union Finance Minister Arun Jaitley on Tuesday (April 10) said 'FCs use appropriate criteria to assess true needs of the states'.

    Finance Minister Arun Jaitley

    Today, a crucial meeting of the ministers of the southern states was held in Kerala's capital Thiruvananthapuram to discuss the concerns and views on the Terms of Reference (ToR) of the 15th Finance Commission. The meeting was organised by Kerala Finance Minister Thomas Isaac in Thiruvananthapuram after the southern states opposed the latest terms of reference (ToR), which they claim will cut their share in revenues while benefiting the Centre with a bigger slice of the pie.

    "FCs use appropriate criteria to assess true needs of States. Population proxies very well for the needs of the people in a quantitative sense. Another criterion, the Income Distance, which captures very well relative poverty of people in the States, is used to assess qualitative needs. These two parameters allocate more resources to the populous and poorer States, which need additional funds for providing education, health and other services to the people, which own resources of these poorer States may otherwise not allow," Jaitley wrote in a Facebook post to address the concerns raised by the Southern states.

    Talking to reporters, Kerala finance minister T.M. Thomas Isaac had earlier today said the changes in the ToR of the 15th Finance Commission, that would adversely affect the southern states, has not become a debate in the country.

    "The objective of the conference was to highlight the issue and make it a national agenda for debate", Isaac said.

    Slamming the Centre, he said the ToR was against the federal co-operative structure of the country.

    "We will not allow destroying the federal co-operative structure of the nation," he said.

    The ToR has recommended using the 2011 census to calculate population for allocation of union tax revenue in place of 1971 census, which was used by previous finance commissions. This would adversely affect the southern states, he said. There was uncertainty over the incentives to be given to states, he said.

    There were several issues that have to be discussed at the national level. The meeting would be the first step towards that, he said.

    Here is Jaitley's complete Facebook post in which he tried to address the concerns:

    The Needless Controversy over the 15th Finance Commission

    - Arun Jaitley

    A needless controversy is sought to be created that the Terms of Reference (ToR) of the 15th Finance Commission are loaded against any particular region of the country. Nothing could be further from truth.

    The share in Central taxes is allocated to the States based on recommendations made by the Finance Commissions (FCs) to help States to meet fiscal deficiency in providing a minimum standard of services to their people. This calls for assessing States' 'needs' on rationale and equitable basis. FCs use appropriate criteria to assess true needs of States. Population proxies very well for the needs of the people in quantitative sense. Another criterion, the Income Distance, which captures very well relative poverty of people in the States, is used to assess qualitative needs. These two parameters allocate more resources to the populous and poorer States, which need additional funds for providing education, health and other services to the people, which own resources of these poorer States may otherwise not allow.

    The 14th FC had no specific mandate for using 2011 census. Yet, 14th FC rightly used the 2011 census population data to capture the demographic changes since 1971 to make realistic assessment of the needs of the States. It allocated 10% weight to 2011 population. The 14th FC had allocated a 42% share in the Central Taxes to the States more than ever before.

    There is specific inclusion of another reference, i.e., 'efforts and progress made in moving towards replacement rate of population growth' in the Terms of References of the 15th FC. This ToR recognises the efforts of all the States which have done well in population control. This specific ToR would allow the 15th FC to propose a specific incentive Scheme to reward the States which have achieved replacement level of population growth, and also, if the 15th FC wishes to do so, to assign appropriate weight to the progress made in population control while allocating resources.

    The ToRs of 15th FC rightly balance both the 'needs' represented by latest population and "progress towards population control" very well. There is no inherent bias or mandate in the ToRs of the 15th FC which can be construed as discriminatory against the States which made good progress in population control.

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