Stalin calls Centre’s allocation of funds to states a ‘travesty of justice’, writes to 10 CMs

The 15th Finance Commission is effectively penalising states that have managed to control their population – and that means the south, especially, will be hit.

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DMK working president MK Stalin has thrown his weight behind regional leaders, especially from south India, who are speaking out against the Centre for various policies, especially regarding money. Criticising the fiscal policy of the Centre regarding distribution of funds to the different states, Stalin on Wednesday wrote a letter to the Chief Ministers of 10 states – all of them “which perhaps not coincidentally have been governed by non-BJP parties for almost our entire history,” Stalin writes.

In his letter, Stalin raises concern that states that have effectively controlled their population are being penalised by the Centre, which is giving them a smaller share of central funds. Calling the Terms of Reference of the Fifteenth Finance Commission a travesty of justice, Stalin said it “will reduce the distribution of central revenues to the progressive states by a very substantial margin.” He also called it an “ill-conceived effort to systematically divert resources to States, which have never made serious attempts at population control.”

“I am concerned about certain elements of the Terms of Reference (ToR) for the Fifteenth Finance Commission (XVFC), which will affect the very fabric of equitable and just devolution of central tax revenues to the states,” Stalin writes in his letter.

The letter was sent to Tamil Nadu Chief Minister Edappadi Palaniswami, Puducherry’s V Narayanasamy, Kerala’s Pinarayi Vijayan, Andhra Pradesh’s Chandrababu Naidu, Telangana’s K Chandrasekhar Rao, Karnataka’s Siddaramaiah, Odisha’s Naveen Patnaik, West Bengal’s Mamata Banerjee, Delhi’s Arvind Kejriwal and Punjab’s Captain Amarinder Singh.

Less population, less money

Stalin’s concern – like that of several other leaders – is based on the fact that the Centre distributes funds from to various states on the basis of their population. Unlike the 14th Finance Commission, which based their calculations on the 1971 census, the 15th Finance Commission is basing it on the 2011 census to determine how much money each state gets.

The 1971 census was frozen as the base year before and has been used by ToRs of all Finance Commissions since 1976. This was done to ensure that states which had implemented effective population control measures, were not hurt during the allocations.

But the 15th Finance Commission has instead chosen to penalise these states for doing a better job. This means that states that have effectively controlled their population – like Tamil Nadu, Karnataka, Kerala etc – will get less money than states that have failed to control their population, like Uttar Pradesh.

The Central government, Stalin writes, has for the first time, without consulting the states, stipulated an entirely different approach in the ToR of the 15th Finance Commission.

He also juxtaposes this with another clause in the ToR, which says that the Commission may consider ‘measurable performance-based incentives’ for states that take steps to move towards ‘replacement level of population growth’. This means that states that take steps to bring down their population to an optimal level will be incentivised.

However, for states like Tamil Nadu – that have already achieved an optimal fertility rate – these incentives, too, will be denied.

Stalin writes, “These two Terms of Reference will negatively impact the allocations to many progressive states like ours in a compound way. On the one hand, we will be losing disproportionally by the use of 2011 census data as the basis, and on the other, we will also be deprived of any incentive under Term #4, as we achieved (or exceeded) the neutral net reproductive rate target long ago. Taken together, these must be construed as the most counter-productive measures taken hitherto with regard to population control incentives provided by the central government.”

Hitting out at the Centre for this travesty of justice, he also accuses the Centre of incentivising states that have never made serious attempts at population control – hinting at Uttar Pradesh.

Rewards only for those who bow to Central Schemes?

One of the 15th Finance Commission’s proposed incentive measures to determine allocation is by way of achievements in the implementation of the Centre’s flagship schemes. Arguing that progressive states like Tamil Nadu have already implemented their own socio-economic programmes and achieved “exemplary results well in advance” of the Centre’s schemes, the DMK leader goes on to condemn the BJP-led Union Government for inserting the term without consulting states, thereby going against the spirit of cooperative federalism.

The DMK leader writes, “States like ours, which perhaps not co-incidentally have been governed by non-BJP parties for almost our entire history, have already achieved objectives like universal electricity connection, road connectivity to all villages, comprehensive cooking gas connections and free rations to families below BPL, well before the Government of India’s schemes were even proposed in such areas, let alone implemented with any success. Therefore, it is condemnable that such a regressive ToR focused on Government of India’s programs alone is included, as opposed to a more neutral ToR which referenced progress towards the target outcomes of such programs, irrespective of whether the program originated at the Centre or the State. That this Term was inserted without consulting the states makes this action even more inimical to the spirit of cooperative federalism.”

Who decides what’s populist?

Stalin also slams the 15th Finance Commission for a clause that says state governments will be incentivised for “Control or lack of it in incurring expenditure on populist schemes.”

“It is fundamentally un-Democratic that the un-elected members of the Central Finance Commission should even claim to judge which schemes are “populist” in any State. Who has the authority to convey such authoritarian powers, above and beyond those of the duly elected governments in each State, to a small Committee? This is a constitutional question, and it is my belief that this term of reference is unconstitutional, and it violates the due powers of every elected State government,” he writes.

Stalin also states that the 15th Finance Commission is not going to consider revenue gaps, which was considered by previous Finance Commissions – as the phrase ‘states which are in need of assistance’ is missing this time.

“Under these circumstances, the attempt to give the members of the Finance Commission (whose selection had no input from any State Government) authority to determine which schemes are “populist” amounts to an assault on States’ rights. It is, and must continue to be, the responsibility of every state to progressively eliminate revenue deficits. What will result if the XVFC can, at its sole discretion, considers certain schemes as populist and therefore eliminate them from their basis of the revenue expenditure totals of the States, without even giving any opportunity to the States to explain their position,” he writes.

Where is co-operative federalism?

He also hit out at the Centre for not consulting states before taking such decisions. “The government of India has proclaimed that they function on the principles of cooperative federalism. However, the announcement of the Terms of Reference for the Fifteenth Finance Commission, which are vital for the effective and efficient functioning of the states for five years after the award, without any consultation with the states not only contradicts the principles of federalism, but in fact clearly biases any likely outcome in favour of certain states at the expense of others,” Stalin writes.

“In summary, it may not be an overstatement to suggest that the fiscal autonomy of many states could be reduced to that of Municipalities due to the ill-conceived Terms of Reference of the Fifteenth Finance Commission, which were framed without consulting any of the States,” he says.

He concludes his letter by urging the 10 CMs to join him in demanding immediate modifications to these “undemocratic and biased Terms of Reference” and to consult all the States and the GST Council before framing new ToRs.

“This is the only way to ensure that that there will not be grave injustice perpetrated upon our States in the manner of the devolution of taxes, which will almost certainly lead to grave discontent and unrest amongst those wronged by such actions,” Stalin concludes.

Growing unease among regional leaders

Stalin’s move to reach out to the Chief Ministers of non-BJP ruled states, however, isn’t the first instance. Discontent has been brewing, especially when it was revealed that the 15th Finance Commission would use the population data of 2011 while making its recommendations.

In February 2018, Jana Sena party chief Pawan Kalyan questioned the population-based formula for sharing tax revenues between states, and asked if the Centre was going to use the 'success of south Indian states' against their own interests.

Karnataka Chief Minister Siddaramaiah also brought this up in a post he had written last week, where he said that issues of federalism affect the state on a day-to-day basis. The CM raised the fact that “Karnataka, Kerala, Tamil Nadu, Andhra Pradesh and Maharashtra contribute more to central taxes than what they get in return from the centre.” He stressed on the necessity for central schemes to be flexible and tailored according to the needs of the state. “Historically, the South has been subsidizing the north. Six states south of the Vindhyas contribute more taxes and get less,” Siddaramaiah wrote.

The discontent was also evident when Andhra Pradesh Chief Minister N Chandrababu Naidu walked out the BJP-National Democratic Alliance after Finance Minister Arun Jaitley defended the Centre’s decision to not grant the state Special Category Status. “There is nothing called Central money or state’s money. It’s the people’s money. The southern states contribute maximum tax revenues to the Centre, but the latter is diverting the money to the development of northern states,” Naidu said during the Governor’s address in the state legislative council in Amaravati.

Telangana Chief Minister K Chandrasekhar Rao floated the idea of a ‘third/federal front’ and has even begun garnering support for the same. He floated the idea of third front as an “alternate force” which will be on “people’s agenda”.

When KCR was asked who would lead the third front, he said, “It will be a collective leadership, it will be a federal leadership,” a point that Stalin echoes as well.