Southern states unite against Centre on fund allocation disparity

south-india-commons Finance Commission's new norms may leave southern states with lower tax fund share | via Commons

The dynamics of north versus south debate in India is taking new dimensions as the southern states come together against the Centre on the distribution of tax funds among states. The new developments suggest that the friction between the BJP-led NDA government at the Centre and the south Indian states is getting worse.

Kerala Finance Minister Thomas Issac has called for a meeting of finance ministers of southern states on April 10 to discuss the "skewed" Terms of Reference (ToR) of the 15th Finance Commission (FC).

The major bone of contention for southern states is that the 15th FC has used 2011 Census data as its ToR instead of 1971 Census data, which had been used until the 14th FC, for making recommendations. The new ToR may leave southern states with a smaller portion of funds due to its shrinking population.

Issac said that the southern states are being "penalised" for the successful implementation of family planning policies from 1971, which had led to the decrease in population. He raised the concern that "the quantum of devolution of funds to the states will be affected if 2011 census is taken as the basis point".

Sources said that Isaac has personally contacted the southern finance ministers over phone and they have agreed to attend the meeting.

Other leaders from southern states have also flagged the new ToR which may affect equitable distribution of the central tax revenues to states, particularly in the new GST regime.

Karnataka Chief Minister Siddaramaiah had also raised concern on federalism and tax devolution in the country. In his Facebook post on March 14, 2017, he had stated, "Historically, the South has been subsidizing the north. Six states south of the Vindhyas contribute more taxes and get less. For example, for every one rupee of tax contributed by Uttar Pradesh that state receives rupee 1.79. For every one rupee of tax contributed by Karnataka, the state receives 0.47 rupee. While I recognize the need for correcting regional imbalances, where is the reward for development? The states of the South have nearly reached replacement levels of population growth. Yet, population is a prominent criteria for devolution of central taxes. For how long can we keep incentivizing population growth?"

In a tweet, Siddaramaiah has also reached out to the state leaders of Tamil Nadu, Kerala, Tamil Nadu, Telangana, Andhra Pradesh and Puducherry to "resist" the Centre's move to use 2011 Census data.

Another cause of worry, as per the ToR, is that the ability of states to borrow from open markets to meet its expenditure may also get reduced drastically. The new FC has, in fact, moved towards a new format by using performance of states in implementation of Union government's flagship schemes, as a parameter for recieving the share of central funds.

With inputs from PTI