Southern States Oppose New Yardstick In 15th Finance Commission

Thiruvananthapuram: Three southern states - Kerala, Karnataka and Tamil Nadu - have vociferously questioned the yardstick used by the 15th Finance Commission to allocate Central funds to states. They contend that under the new system, states of southern India will get less funds.

Thomas Issac, the finance minister of Left-ruled Kerala, has reached out to his counterparts in southern states and Maharashtra for a meeting on April 10, to discuss the issue. "I am very concerned with the Terms of Reference (ToR) of the Finance Commission," Mr Issac told NDTV, while pointing out that "all the finance ministers in principle have agreed". 

"It is very clear that the transfers to the states are going to be increasingly more conditional. Without consulting the states, the base year of 1971 has been changed to 2011," said Mr Issac. According to him "southern states share many common features" - particularly, successful population control. "How can you penalise states that promoted population control well? All southern states are going to lose out heavily with new the ToR."

Tamil Nadu's opposition leader, DMK's MK Stalin, has flagged the issue to Prime Minister Narendra Modi. He has also written to Chief Ministers of 10 states that are not governed by the BJP.  Karnataka Chief Minister Siddaramaiah has followed up with a Facebook post on "who contributes more taxes and gets less" - which is also a hot button issue in the state where assembly elections will be held soon. 

Traditionally, the census of 1971 was taken as the basis for allocation of funds by finance commissions, tasked with parceling out Central funds to states. But the 15th Finance Commission used the 2011 census as its ToR.

The southern states, which will now get a smaller portion of funds due to their shrinking population, contend that the change was made without consulting them. 

Mr Stalin's state, Tamil Nadu, will lose out heavily if 2011 census data is used, since it achieved the reproductive rate target long ago, unlike states like Uttar Pradesh, Bihar or Rajasthan. Tamil Nadu also has its own welfare and development programmes that are hugely popular.

In his letter, Mr Stalin said "progressive states" have implemented socio-economic programmes on their own and got good results, ahead of similar schemes by the NDA government. His letter also said the new ToR will affect equitable distribution of the central tax revenues to states, particularly in new the GST regime. This has been a matter repeatedly flagged by the Karnataka Chief Minister.

In his Facebook post on March 14, Mr Siddramaiah had said, "Historically, the South has been subsidizing the north. Six states south of the Vindhyas contribute more taxes and get less" - a point he has made repeatedly in his election rallies.

Explaining the matter, he said for every rupee of tax contributed by Uttar Pradesh, it receives Rs 1.79 from the Centre. But in case of Karnataka, for every rupee contributed, the state gets only 47 paisa. "While I recognise the need for correcting regional imbalances, where is the reward for development?" his post read.

The other yardstick of the 15th Finance Commission is also askew, the states contend. Instead of looking at holistic development, the commission is looking at how well the states have performed regarding Central government's flagship schemes, like ease of doing business, infrastructure and sanitation, including ending open defecation. Performance on these heads will be critical incentives for states' share of central funds.