Responding to the issue raised by southern states that they are receiving relatively less share from the Central taxes as the population in these states have fallen, Finance Minister Arun Jaitley has now responded on the issue on the terms of reference of the 15th Finance Commission. Speaking on the matter, Finance Minister Arun Jaitley said, “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.”

The issue was highlighted after the states including Kerala, Tamil Nadu has alleged that the National Democratic Alliance (NDA) led government at the Centre was biased against them. Not only this, but Kerala Finance Minister further added and said that the Terms of Reference (TOR) of the 15th finance commissions as undemocratic and also termed it as an attack on federal structure.” However, rejecting the allegation that any state or a region in the nation was being ignored in relation to the Central taxes of the states.

Here is the complete statement issued by Finance Minister Arun Jaitley on the controversy. The letter link was shared by the Finance Minister on his Twitter page.

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. 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.

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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.

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