Kerala rallies southern states against Centre’s move to revise allocations

Kerala Finance Minister TM Thomas Isaac had called for a meeting of all south Indian finance ministers to discuss the Terms of Reference (ToRs) of the 15th Finance Commission. Isaac believes that these ToRs would have serious consequences on the states’ finances.

Initially, all the states had expressed their willingness to attend, but then the Telangana government decided to refrain from attending and Tamil Nadu Finance Minister O. Paneerselvam stated that since all the other states were opposed to the Central government, he didn’t want to be seen with them.

The Commission had stated that it would use the population data of 2011 to calculate population for allocation of Union tax revenue in place of the 1971 Census, which was used by the previous finance commissions. This would work against states which had implemented family planning to control population. While the population of the southern states increased by 56 per cent, that of north Indian states increased more than 150 per cent, said Isaac.

At the meeting, the non-BJP ruled states and UT—Andhra Pradesh, Karnataka, Kerala, Puducherry—have demanded the reframing of ToRs especially because it contradicted the principles of federalism.

National Herald on Sunday’s Ashlin Mathew speaks to Thomas Isaac. Excerpts of the interview:

Why did you call for a meeting of all finance ministers?

I have called for a meeting of the finance ministers of all south Indian states. Most of them have accepted; the Telangana finance minister has personally accepted, but formally he hasn’t communicated.

I called for this meeting because of the whole tenor of the commission is anti-federal and secondly, the population criteria of the Commission will very severely affect the devaluation to states, whose population has come down. If the last commission’s population figures are used instead of the 1971 figures, Tamil Nadu will lose around ₹40,000 crore. It is a shock which no state government can withstand. Kerala stands to lose between ₹16,000 and ₹20,000 crore. One has to wait and see what weightage will be given to population and that is why there is likely to be some discrepancies in these figures.

If the Terms of Reference of the 15th Finance Commission is followed, then Tamil Nadu will suffer the most, followed by Andhra Pradesh, Kerala and Karnataka.

If the devolution process is going to use the 2011 population figures, then the criteria for it is backwardness. It is in the backward states that the population growth has taken place and that is tantamount to making the entire devaluation process based on backwardness alone. I am not against population being considered, but you can’t have a situation where efficiency is not considered at all.

The states that will benefit the most are the BJP-ruled states such as Uttar Pradesh, Rajasthan and Madhya Pradesh. It’s not exactly a north-south divide because the population has reduced in Orissa, Punjab, West Bengal and Himachal Pradesh too. But, all the south Indian states have not only common features of democracy transition, but also education and health achievements.

Do you think the terms of reference of the 15th Finance Commission were arrived at so that the BJP states get more revenue?

They have some terms of reference and they are rightly focussed upon like the special support given as compensation to these states. There is a concerted effort to do so. The point is population is only half the story. These terms of reference are nothing but reflect an outright bias of the Central government. It is undemocratic to a state which has implemented schemes. It is a political issue and it is not to be determined by a Commission. They want to have conditions for providing revenue to the states.

What do you hope will emerge from the meeting?

What I hope that we are all able to send a serious message to everyone concerned about our reservations on the terms of reference. Any attempt to infringe upon the existing fiscal autonomy of the states, lack of sensitivity and total disregard to efficiency will not be welcomed. We are unlikely to pass any resolution. The meeting is meant for free exchange of ideas to ensure that the interests of our states are taken into consideration. After the meeting, we hope to have bilateral talks with all the states which would also be affected by the 15th Finance Commission report.

Do you think BJP general secretary Ram Madhav met the Finance Commission chairman after you called for the meeting and Karnataka CM Siddaramaiah alleged discrimination against southern states?

There was hardly any discussion in the public domain about the ToRs of the 15th Finance Commission. It is extremely strange. The calling of the meeting has very dramatically brought these issues into public domain. I am not sure of Ram Madhav’s meeting with the Commission authorities, I think we have succeeded in bringing before the nation the issues which weren’t getting any attention.

What terms of the 15th Finance Commission should be changed?

We would want the Commission to include more conditionalities such as acceptance of the review committee meetings. They should accept the recommendations of the 14th Finance Commission and they should avoid stating that the 14th Finance Commission gave too much to the states, hence there was a need to create the 15th Finance Commission. In fact, then you are stating that state’s share should be reduced. It is true that the state’s share in the Union taxes went up to 42 per cent in the 14th Finance commission report, but it also cut down the discretionary grants and then allowed the tax share to go up. All these recommendations have been done to squeeze the state’s share, so I hope they won’t do that. I hope they would not suggest conditions on the public borrowing by the states. They should give a special consideration to the efficiency, in case of states where the fertility rates have declined. If for some reason they do not want to change the base population year, then it should be neutralised adequately by giving greater weightage for fertility decline. They can incentivise states where population has declined, but we would like the 1971 population Census to be used, but that cannot be done until the Central government changes the ToRs. These are some of our recommendations.

There is a danger of reduced revenue from the Centre. Kerala has registered a fall in GST collection and remittances from abroad have also dropped. What is the way forward for Kerala’s finances?

The implementation of GST was flawed and that has led to a reduction in collection. In another few months, we hope the situation will stabilise and the situation would improve. GST is a destination tax and Kerala being a destination state was expected to benefit from it. I’m hopeful of the collection to improve. Kerala’s finances have not yet stabilised and it is extremely difficult and that is why the terms of the Finance Commission is important for us. We have also constituted the Kerala Infrastructure Investment Fund Board (KIIFB) to mobilise funds. The KIIFB will mobilise resources from NRI investors (through chit funds) and bond markets (General Obligation Bond, Revenue Bond and Land Bond) to implement projects.