Six States Oppose Terms Of Reference Of 15th Finance Commission

Chief ministers and finance ministers of six states and union territories ruled by non-NDA governments today wrote to the President, urging that some of the terms of reference set by the 15th Finance Commission be re-framed.

At a conclave held at Amaravati, representatives from Andhra Pradesh, West Bengal, Delhi, Punjab, Kerala and Puducherry raised concerns on some of the terms set by the Commission, claiming these would infringe on provisions of the Constitution and disrupt the existing federal-fiscal arrangements. The event followed a workshop held at Trivandrum last month where finance ministers of southern state had discussed the matter.

The three southern states – Kerala, Karnataka and Andhra Pradesh – were the first to express opposition to the ToR issued for the Commission, which they said left them worse off.

The ministers recommended amendments to the existing terms, which they said penalises progressive and performing states, according to the draft memorandum sent to the President. The 14th Finance Commission's move to put a 10 percent weightage on population while splitting tax revenue and the current commission's steps to increase this weightage, rewards states with high fertility rates and poor family planning programs, Andhra Pradesh Finance Minister Y Ramakrishnudu said.

He added that the division of powers between the Centre and states for tax collection and borrowings already leaves states short of resources. “The attempt is to reduce the borrowing power of state governments from 3 percent of GDP to 1.75 percent. This will be disastrous for states,” Kerala Finance Minister Thomas Isaac told BloombergQuint in an interview.

States have to incur capital expenditure to provide adequate infrastructure to attract private investment, Ramakrishnudu said, adding that relying on the population to determine states' share of taxes will widen both fiscal and revenue deficits.

The group of minsters recommended going back to using the population census of 1971 for devolution of taxes between the Centre and states, Issac said.

Other areas of dissent included the need to determine tax devolution on the basis of current tax and non-tax revenue over future estimates, reinstating the need for revenue deficit grants and reversal of some performance-based incentives. The recommendations also included the need to move towards fiscal autonomy instead of relying on the Centre's discretion for the release of funds.

Andhra Pradesh Chief Minister N Chandrababu Naidu said that the Commission was also studying if state expenditure was controlled by populist measures. The Centre should be assessed on such parameters as well, he added.

“These are not the proper domain of the Finance Commission...We are clear that this kind of incentivisation should be removed from the terms of reference,” Isaac said.