Union Finance Minister Arun Jaitley on Tuesday rejected the accusation that the Centre was biased against the southern states, claiming that a needless controversy had been created about the 15th Finance Commission’s terms of reference. The guidelines were not discriminatory against states that have made good progress in population control, he added.
The Finance Commission decides how taxes collected by the Centre should be distributed among the states. The terms of reference for the 15th Finance Commission say that it should use the 2011 Census – and not the 1971 Census as has been the norm – as the base year to determine how the revenue is divided.
A state’s population is a significant factor in determining how the tax revenue is distributed, and southern states, which have controlled their population growth over the decades, fear that the new base year will harm their interests.
“The finance commissions use appropriate criteria to assess true needs of states,” Jaitley said in a Facebook post. “Population proxies very well for the needs of the people in quantitative sense. Another criterion, the income distance, which captures very well relative poverty of people in the States, is used to assess qualitative needs. 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, which own resources of these poorer States may otherwise not allow.”
The minister said though the 14th Finance Commission did not need to use 2011 census data, it had rightly used it to factor for the demographic changes since 1971 and make realistic assessment about each state’s needs. “It allocated 10% weight to 2011 population,” Jaitley said. “The 14th FC [finance commission] had allocated a 42% share in the central taxes to the states more than ever before.”
He pointed out that one of the terms of reference provides incentives to states that have succeeded in controlling their population. The panel can also “assign appropriate weight to the progress made in population control while allocating resources”, he said.