15th Finance Commission: Now Odisha opposes terms of reference, wants SCS tag

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New Delhi | Published: April 14, 2018 5:25:18 AM

Bihar, Chhattisgarh, Jharkhand, Rajasthan and Uttar Pradesh too had in the past clamoured for the SCS tag. It is another matter the SCS benefit is limited; there could be other ways to address the resource-poor status of states.

The 15th Finance Commission’s (FC) terms of reference (ToR) have put fetters on its remit and its use of 2011 Census data would hit Odisha. ((Reuters)

The 15th Finance Commission’s (FC) terms of reference (ToR) have put fetters on its remit and its use of 2011 Census data would hit Odisha, which is already below replacement rate of 2.1, the state’s chief minister Naveen Patnaik wrote in a letter to Prime Minister Narendra Modi on Friday, joining in the chorus of the southern states who have articulated similar concerns. In what would make the commission’s task difficult, Odisha has also renewed its plea for special category status (SCS). Neighbouring Andhra Pradesh has been strident in its demand for the tag, while the Centre’s policy is clearly trying to progressively do away with such distinctions (the SCS is now confined to the eight states in the northeast and the hilly states of Jammu and Kashmir, Himachal Pradesh and Uttarakhand).

Bihar, Chhattisgarh, Jharkhand, Rajasthan and Uttar Pradesh too had in the past clamoured for the SCS tag. It is another matter the SCS benefit is limited; there could be other ways to address the resource-poor status of states. When it comes to funding of centrally sponsored schemes, the Centre and the SCS state concerned bears the cost in 9:1 ratio, as opposed to 6:4 in case of other states. Patnaik wrote: “Instead of giving the freedom to the Commission to arrive at its recommendations on resource-sharing between the Centre and States based on the respective needs and after due consultations, there are leading suggestions in the ToR, indicating the overriding priorities and concerns of the Union government. For instance, the reference to the impact of enhanced devolution recommended by the 14th Finance Commission on the fiscal situation of the Union Government and the imperative of New India-2022 seem to nudge the Commission to adopt a particular stance.”

Modi had said in Chennai that allegations that the ToR are biased against certain states or a particular region was baseless. He said that the Centre had suggested to the commission to “consider incentivising the states who have worked on population control”. However, these states are agitated over the Centre issuing directions, even oblique ones, to the commission and the ToR criteria for performance-based incentives for inter se distribution of the aggregate share of states in the divisible pool of taxes. The inclusion of the Centre’s policies and programmes, including its flagship schemes, direct benefit transfers, digital economy, ease of doing business, sanitation, etc, among the performance-based incentives is being opposed. Also, southern states like Kerala, Karnataka and Puducherry are on record flaying the remit given to the commission to define and assess the tenability of “populist measures” as they see this as an infringement upon their autonomous political space.

The 15th FC, whose award will be valid for the 2020-25 period, will rely on the 2011 Census data, while the 1971 Census numbers were mostly used by the previous finance commissions; the 14th commission, whose award (2015-20) is now being implemented, had given weight to both the 1971 (17.5%) and 2011 (10%) censuses as far as population criteria is concerned, while the 1971 census continued to be overriding factor for inter se distribution of taxes to states. The 15th FC’s chairman NK Singh had said earlier that the practice of categorising states for resource transfers from the Centre outlived its utility, even as he added that the commission’s mandate included working for “equitable and balanced growth” across regions and lifting those states which are well below national average against various development parameters, above a certain threshold.

Patnaik wrote: “In many of the performance-based incentives indicated in the ToR, it may not be possible to have measurable indicators. Besides, there is no incentive for the States which have achieved the replacement rate of population growth. On the contrary, they will lose out as the population data of 2011 census will be used by the Commission unless the ToR are suitably amended.” Thanks to the 14th FC award, 42% of the divisible pool of taxes goes to the states; previously, this ratio was 32%.

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