THIRUVANANTHAPURAM: Kerala witnessed a massive drop in local body grants during the 14th and 15th Finance Commissions (FCs) which adopted skewed criteria, according to a study by the Gulati Institute of Finance and Taxation (GIFT). In a marked departure from previous FCs, population and geographical area were the only criteria considered to make recommendations on the distribution of grants among states.
The 16th FC should increase the local body grants and seriously think about reinventing the criteria for distribution among the states, said a research article titled “Fiscal imbalances at local level: Myth and Reality” authored by Shency Mathew, a research associate with GIFT.
Of the two criteria considered by the 14th and 15th FCs, population (based on Census 2011) had a weightage of 90% and geographical area 10%. In contrast, there were 5-6 criteria with proportionate weightage for determining the states’ shares such as ‘distance from highest per capita income’, ‘index of decentralisation’, ‘index of deprivation’ and ‘revenue effort’ from 11th FC to 13th FC.
When these criteria are taken into consideration along with population and geographical area, states such as Kerala, Madhya Pradesh, Maharashtra and Chhattisgarh were receiving higher shares during the period of 12th FC, the report said. But Kerala’s inter state share from the total allocation saw a steep decline - from 4.54% by 12th FC to 2.68% by 15th FC.
“States such as Maharashtra, Karnataka, Tamil Nadu, Madhya Pradesh and Chhattisgarh also lost their share in the 14th and 15th FCs when compared to the previous FC periods. This raises the question of whether the criteria such as population and area alone are enough to address the fiscal needs of the local bodies,” the report said.
The 14th and 15th FCs used Census 2011 for calculation which further affected the prospects of states like Kerala which achieved better population control. Though the 10th FC had population as the single criteria, the state’s share was fairly high, 3.80%, because the calculation was based on Census 1971.
“There’s a significant disparity between the estimated funds suggested by agencies evaluating the expenditure responsibilities of local bodies and the actual allocations recommended by the Finance Commission (FC). The recommended amount already falls short of projected needs, and when this limited sum is distributed among states, the lone consideration of criteria like population and geographical area affect states like Kerala,” Shency told TNIE.
“Local bodies, often unable to generate sufficient revenue on their own, heavily rely on grants from higher levels of government. This reduction in funding presents a serious obstacle for local governments, undermining their constitutional mandate,” she added.
Her study pointed out that the adoption of population and area as the only criteria will result in disparities. The new FC should add suitable criteria used by previous commissions like ‘distance from the highest per capita income’, ‘index of decentralisation’ and the ‘index of utilisation of local grants’, it said.