Finance Minister Arun Jaitley said a needless controversy is being created over the issue.
Union Finance Minister Arun Jaitley on Tuesday cleared the air over the terms of reference of the 15th Finance Commission, saying a needless controversy is being created over the issue. In a Facebook post today, Jaitley said, “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.”
Some southern states have raised concerns over a new population-based formula for tax sharing between the Centre and states. The 15th Finance Commission, constituted in November 2017, has recognised population as an important criteria for distribution of taxes and said it will use data from the 2011 census while making recommendations for the five-year period beginning from 2020.
The southern states, however, want the recommendations to be based on 1971 census data. This is because, as compared to northern states, south India has recorded significant progress in population control or in the replacement rate of population growth.
In his statement, he rejected the claim and said “there’s 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.”
Jaitley explained that 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. 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.”
His statement further said: “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.”
The Union minister said that the ToRs of the 15th FC balance both the ‘needs’ represented by the latest p[opulation and ‘progress towards population control’ very well. “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,” he stated.