The State of finance

IN the modern era, “perform or perish” is axiomatic. No equitable distribution system can justify this principle. To that extent, concerns of the three southern states — Andhra Pradesh, Karnataka, Kerala — and Union Territory of Puducherry are valid. They have made conscious and successful efforts towards the national goal of keeping population under check. Nevertheless, they fear reprisal for their good performance. They now feel threatened that their share in the national tax revenue would shrink significantly, as the 15th Finance Commission (FC) is to determine states’ shares according to the population data of 2011. The commission, which is constituted to devise a mechanism for the devolution of tax revenues between the Centre and states for five years, starting from April 1, 2020, has been  asked to “use the population data of 2011” while making its recommendations. Such specific mention was absent from the term of reference (ToR) of the 14th FC, which had, however, given some weightage to the 2011 population data that had apparently reduced the revenue share of some states despite their better performance on socio-economic fronts.

There is a need to dispel the doubt. The aggrieved states should approach the commission for greater clarity as it has already invited suggestions from the public on all matters concerning an equitable distribution of tax revenues among stakeholders by June 30. In the absence of an institution like the Planning Commission, which mediated between the Centre and states, it is the responsibility of the Finance Ministry to take a lead in this matter. A consensus on this matter seems difficult because of divergent political interests. The BJP’s political adversaries rule all the three states and the union territory. Nonetheless, the Finance Ministry’s approach reflecting evenhandedness can help evolve a GST-like consensus.  

The Finance Minister sought to clarify that the ToR of the 15th FC recognises the efforts of all the states which have done well in population control and also offers that those making progress in other socio-economic parameters would be adequately rewarded. The commission must also judge states on the basis of quality public expenditures and fiscal stability.