He added that the Finance Commissions use an appropriate criteria to assess the true needs of states, helping them meet a fiscal deficiency.
Union Finance Minister Arun Jaitley on Tuesday said that the controversy surrounding the Terms of Reference (ToR) of the 15th Finance Commission is ‘needless’. Jaitley’s response came after the southern states of Andhra Pradesh, Kerala, Puducherry, and Karnataka raised demands over the ToR of the 15th Finance Commission. “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,” Arun Jaitley wrote on social media platform, Facebook.
He added that the Finance Commissions use an appropriate criteria to assess the true needs of states, helping them meet a fiscal deficiency. “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,” he wrote.
“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,” he added. A meeting was hosted by Kerala today, which had officials from Andhra Pradesh, Puducherry, and Karnataka.
The finance ministers from the states met to discuss their concerns over the Terms of Reference of the 15th Finance Commission. The 15th Finance Commission, which was set-up in November 2017, had said that it will use data from the 2011 census while making recommendations for the five-year period, which begins in 2020. However, the southern states, want the recommendations to be based on the 1971 census data.
“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 percent weight to 2011 population. The 14th FC had allocated a 42 percent share in the central taxes to the states more than ever before,” Jaitley said. He also added that the Terms of Reference of the 15th Finance Commission balances the needs represented by the latest population and the country’s progress towards population control.
“There is specific inclusion of another reference, i.e., ‘efforts and progress made in moving towards replacement rate of population growth’ in the ToR 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 Finance Minister added.
“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,” Arun Jaitley concluded.