15th Finance Commission: Diversion of funds from South to North

The Fifteenth Finance Commission’s Terms of Reference (ToR) have evoked a sharp response from southern states. The ToR mandates the Commission to use 2011 population for tax sharing and devolution of resources instead of 1971 population as was the practice in the past. 

The ToR seemingly fair to use the current population data has far reaching implications.

• Between 1971 and 2011, except Telangana, population shares of four southern states in total declined from 22.01% to 18.16%. Thus, other things remaining the same, use of 2011. population for sharing resources means a decline in the flow of resources to these states.
• Population share has also declined in Assam, Goa, Himachal Pradesh, Odisha, Punjab and West Bengal. Thus, use of 2011 population would also affect economically less prosperous states like Assam, Odisha and West Bengal.
• Between 1971 and 2011, while the population in south India went up 85%, the BIMARU states in north India (Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh) went up by 144%. 
• In the past, tax-sharing formula was a combination of factors reflecting equity, need and efficiency. Population being a neutral indicator of need has been used by all 14 finance commissions. 
• The 14th Finance Commission gave 17.5% weightage to 1971 population in the tax-sharing formula, it also gave 10% weightage to 2011 population to reflect demographic change. 
• The fundamental question is ToR asking FC to assess fiscal needs of states for tax sharing and grants is nothing but binding the Commission’s work to a particular reference population is arbitrary and unfair to all the stakeholders including the Commission.
• In reality the Southern states are more productive and contributes largesse to exchequer and are ruled by non-BJP parties apart from lower population growth. Where as Northern states contributes much less to exchequer and have higher population growth and are ruled by BJP. Hence 15th FC ToR effectively transfers more funds from performing - non BJP ruled - Southern states to non performing - BJP ruled - Northern states. This is not only atrocious and audacious but also condemnable on the part of PM & FM in framing discriminatory ToR for 15th FC.
• The 15th FC ToR also penalises those states with efficient administration in terms of population growth and higher productivity and incentivises ineffieffient, non performing states with higher population growth. This is ridiculous.
• Since decline in population in 10 states is real and its adverse impact on resource transfers is real, designing an appropriate grant mechanism to reward these performing states is the responsibility of the Union Government. 
• The only way is to scrap all the ToR and allow FC to frame its own rules for allocation of resources. The incentive or rewarding performing states should be done through a grant mechanism instead of tax sharing. 

See the hopeless reasoning given by FM, Jaitley arguing like an fee paid advocate of northern states without even mentioning the grievance of Southern states who stand to lose their rightful share of resources for reason of good performance. He doesn't even mention the anomaly of northern states getting Rs.1.60 for every Re.1.00 contributed by them to national exchequer whereas southern states getting Rs.0.64 for every Re.1.00 contributed by them to national exchequer just by center changing population reference from 1971 to 2011 in ToR without any authorization from anyone.

Ever since independence Southern states (with 24.35% LS seats only) suffered discrimination in the hands dominant Northern states only by virtue of population and 3/4th LS Seats. The present BJP regime headed by Modi with Arun Jaitley as FM are even more blatant discriminators, especially with entire South held by Non-BJP parties. This is no good for unity and integrity of India. Strong national parties like Congress and BJP have already done enough harm to South during past 70 years of Independence. Weak centre can perform better, judiciously even at the expense of rapid unsustainable growth. Then only even LS can function meaningfully and institutions exercise their autonomy. Strong centre with absolute majority for a national party tends to subvert constitution, undermine rule of law, rule whimsically and autocratically making institutions irrelevant. It is time to dump these national parties and let states be ruled by regional parties and form coalition of like minded parties with common minimum program at the centre. Then only North-South discrimination will end and rule of the law will prevail.