On 10th April, Kerala will host a meeting of the finance ministers of the Southern states to discuss their common apprehension with the Terms of Reference (TOR) of the 15th Finance Commission, which will be chaired by N K Singh. So far, the governments of Andhra Pradesh, Karnataka and Kerala have already gone public with their angst with the TOR, as have DMK's M K Stalin. Their main problem lies with the use of 2011 census data, instead of the 1971 census data, to decide how resources should be allocated to the states. The Southern states, and a few others like West Bengal and the states of the North East, have successfully reduced their population growth rates, compared to the rates (and population) of Northern States such as Uttar Pradesh, Bihar and Rajasthan. The suspicion is that this would lead to more resource allocation for the Northern states, while the Southern states get punished for their good performance on population control. Similarly, the thrust being given to the implementation of the central flagship schemes could also affect them negatively, given that the southern states have their own welfare schemes, and have not perhaps focused on so much on the central schemes. There is also point 6, where the TOR asks the 15th Finance Commission to take into account the demand for resources from the centre, as well as what is going to be required for the National Development Programme, including New India - 2022.
The essential worry for the Southern States (and of course West Bengal) is that they may be penalized for their better performance on population control and other social indicators.
That need not be so. Point number 7 of the TOR gives a whole host of areas, where the commission can propose performance-based incentives for states. They are as follows:
(i) Efforts made by the states in expansion and deepening of tax net under GST;
(ii) Efforts and progress made in moving towards replacement rate of population growth ;
(iii) Achievements in implementation of flagship schemes of Government of India, disaster resilient infrastructure, sustainable development goals, and quality of expenditure;
(iv) Progress made in increasing capital expenditure, eliminating losses of power sector, and improving the quality of such expenditure in generating future income streams;
(v) Progress made in increasing tax/non-tax revenues, promoting savings by adoption of Direct Benefit Transfers and Public Finance Management System, promoting digital economy and removing layers between the government and the beneficiaries;
(vi) Progress made in promoting ease of doing business by effecting related policy and regulatory changes and promoting labour intensive growth;
(vii) Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services;
(viii) Control or lack of it in incurring expenditure on populist measures; and
(ix) Progress made in sanitation, solid waste management and bringing in behavioural change to end open defecation.
Essentially, the TOR is broad enough for the N K Singh committee to work out an equitable distribution of resources that takes into account both the better performance of the Southern states, as well as the needs of the Northern states. The commission can give stiff targets to the northern states on a host of measures, and give incentives based on achievement of those targets.
On the other hand, the TOR being broad enough also leaves enormous discretion in the hands of the commission on what they will finally end up recommending.