The recommendations of the 15th Finance Commission for South Indian states have come as an abusive step, as the Commission has recommended a reduction of one percentage point in the funds being transferred to them. According to preliminary estimates, this would cause a huge loss to the southern states and they would lose two percentage points in total funds allocated from the Center. Karnataka is also likely to be affected the most in the southern states, while Tamil Nadu will gain a slight, ie 0.17 percent. On the other hand, states like Bihar, Maharashtra and Madhya Pradesh are likely to benefit the most from it.
The Finance Commission is constituted for five years, recommending the quantum of allocation of taxes from the divisible pool between the Center and the States. The 14th Finance Commission had increased the share of states in this pool from 32 percent to 42 percent, arguing that states should have more control over their financial resources. But the 15th Finance Commission, formed for a tenure of six years, has reduced the share of states to 41 per cent, saying that the Center has to provide this resource for the security and other special needs of recently formed Jammu and Kashmir and Ladakh Union Territories. needed.
For many years, the government has been talking about expanding the tax base, but in reality it has not been able to do so. The problems have increased now because the economy is not in good shape and many indicators are confirming this. Central revenue is estimated at 13 percent of GDP. If states are included in it, it becomes 48 percent. The southern states were agitated only on the terms of the 14th Finance Commission. He argued that these conditions were against his interests. Now leave it to the 15th Finance Commission to address their grievances, they feel that more damage has been done.
He opposed the recommendations of the 14th Finance Commission on two grounds. The first is that the allocations were made on the basis of the 2011 census, that is, the states’ demographics were most heavily emphasized and second, the Commission did not give due importance to the progress made by the southern states in its recommendations. Prior to that, the recommendations of the Commission were based on the 1971 census and gave very little importance to the demographics of the states. The 15th Finance Commission has adopted the same path without any compensation or reward.
The southern states feel that instead of being rewarded by the Center for good performance, they are being punished. Over the last four decades, many southern states have done a better job of population control. They are demographically smaller than some states in the north. The allocation of tax revenue is interrelated with the population of a state. Ever since the economic reforms of 1991, the per capita income of the southern states grew much faster than the states of North India. In 1991, the per capita income of Karnataka was 1.7 times and 1.3 times higher than Bihar and Uttar Pradesh. In the year 2017-18, this increased to 4.7 times and 3.3 times respectively. Clearly, on the front of economic progress, the southern provinces moved faster than the North Indian territories.
The southern states were also angry over the implementation of the recommendations of the 14th Finance Commission, because the part promised to them was not even given to them. As far as the relationship between the Center and the states is concerned, there have been three fundamental changes. States are also worried about these changes and are still struggling to reconcile with them. These changes are – one, plan and non-plan spending has been eliminated; Two- Negotiations between the Center and states for grants and central assistance have ended after the formation of NITI Aayog in place of Planning Commission and three, GST has taken away many rights to tax from states and states so far It is not realized exactly how much is their share? However, the Finance Minister in his budget speech has promised a solution to this problem. In the current situation, states may have to look at new financial models such as more FDI. otherwise also,
The concern of the state governments is not unfounded. In view of the central transfer, Karnataka had made its interim budget of Rs 39,806 crore for the year 2019-20, but it could get only 38,134 crore. In the year 2020-21, it will get only Rs 31,180 crore, which means a reduction of Rs 6,954 crore directly against the previous revenue! Telangana will also meet this destiny. Both these states are looking forward to bridge this gap due to special central grant. Prime Minister Narendra Modi promised to take the country forward on the path of collaborative federalism. Southern states are now reminding them of the promise that the economy is going in the opposite direction.
Parliamentary seats are also a major point of tension in relations between the Center and the Southern States, which are determined by population. There is a deep concern in the southern states that in the next delimitation of seats, how many seats will be reduced? It is estimated that by 2031, the southern state may lose 45 seats in the Lok Sabha to North India. Surely this will not be accepted by the South. It is the duty of the Central and Northern states not to do so.