Arun Jaitley Rejects Charge Of Bias Against Southern States. Read FM's Full Statement

Union Finance Minister Arun Jaitley tries to clear the air on terms of reference of the 15th finance commission. He said that a needless controversy is being sought relating to it. "Needless controversy is being 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," he said in a statement. The controversy revolves around the allegation of southern states that they stand to receive relatively less share from the central taxes (under the Terms of reference of 15th finance commission) because their population has fallen, a feat that deserves to be lauded and not penalized instead.

The southern states, including Kerala, Tamil Nadu, have blamed the NDA-led central government of being biased against them, while Kerala finance minister has called the terms of reference (ToR) of the 15th finance commission as "undemocratic" and called it an "attack on the federal structure".

Arun Jaitley, in his statement that he shared via a tweet, rejected the allegation that any particular region of the country (southern states) was ignored while allocating the share in central taxes to the states. "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," he said.

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He explained that the state share is allocated on the basis of recommendations of the finance commissions. And for that, two criteria are chosen.

"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," he further said.

His statement further reads as follows: "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."

Headed by NK Singh, the 15th Finance Commission used 2011 as the base year.