NEW DELHI: As southern states unite against the terms of reference (ToR) of the 15th finance commission, calling it “undemocratic” and “biased”, Union Finance Minister Arun Jaitley on Tuesday dismissed the allegations and said that a needless controversy is being created.
“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,” Jaitley said in a statement.
Headed by NK Singh, the 15th Finance Commission has been instructed to use 2011 as the base year for population-based calculations, instead of 1971 as had been used so far.
The southern states say that they stand to receive a relatively lesser share of tax revenue from the center under this methodology because their population has fallen, a feat that deserves to be lauded and not penalised.
In this backdrop, the states of Kerala, Karnataka, Andhra Pradesh, as well as the Congress-ruled union territory of Puducherry, held a meeting opposing the ToR stating that it was in contradiction to the principles of federalism enshrined in the Constitution and that it would result in revenue loss to performing states. Jaitley, in a detailed statement issued today, rejected the allegations.
“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,” Jaitley said.
He also explained that the state share is allocated on the basis of recommendations of the finance commissions. And for that, two criteria are chosen. “This calls for assessing States’ ‘needs’ on the 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 a quantitative sense. Another criterion, the Income Distance, which captures very well relative poverty of people in the States, is used to assess qualitative needs,” Jaitley said.
According to him, 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.