BHUBANESWAR: Chairman of the 16th Finance Commission Arvind Panagariya on Thursday said the Odisha government has suggested use of modified population variable in the tax devolution formula instead of taking the entire population of a state.
Briefing reporters after consultations with the state government led by Chief Minister Mohan Charan Majhi, Panagariya said population criteria had been taken into consideration by the previous commissions including the 15th Finance Commission giving a weightage of 15 per cent.
“The state government has however demanded more weightage to the vulnerable sections of the population. We will look into it before making our recommendations to the Centre,” Panagariya said.
The state has argued that use of the entire population as a determinant of tax devolution (as different from purely scaling purposes) assumes that the entire population is a liability for the state government and therefore devolution should be positively linked to it. This negative line of thought is also incorrect because a larger population is not a liability if it is largely productive.
“A better approximation of the government liability would be population share modified by the share of vulnerable population (Scheduled Castes and Scheduled Tribes) and those requiring special attention (people above 80 years of age and widows without any support).
We suggest that such a modified population variable be used in the devolution formula instead of the entire population with a weight of 15 per cent,” the state’s memorandum to the 16th FC said. The state has also suggested to give significant reward to states with more controlled growth of population. It has suggested that demographic performance variable be used in the devolution formula with a weightage of 10 per cent, said Panagariya.
The state has argued that using area as a proxy for density of population is incorrect because smaller states may be sparsely populated while a state large in size is not necessarily sparsely populated - the high correlation between area and population shows that larger states are not in general those with low population density.
He said Odisha has sought the area variable to be dropped and substituted by a variable representing population density with a weightage of 5 per cent.
