Where is the financial backing for states?

Hyderabad: The Fifteenth Finance Commission which has tightened monetary shackles to the South has submitted its final recommendations to President Ram Nath Kovind continuing its trend of the initial recommendations. The Fourteenth Finance Commission had previously allocated the states with a 42 per cent stake in the distribution of financial resources between the centre and the states.

The NK Singh commission has cleverly further reduced that allocation by one per cent for the year 2020-21 and diverted it to take care of the defence aspects of the Jammu and Kashmir which has lost its statehood and become two union territories.

The Singh Commission has recommended a grant of Rs 2.9 lakh crore to the states for the widening revenue deficit of Rs 17 lac crores and Rs 4.3 lakh crore to local bodies over the next five years and put the national defence account responsibility on the states, which was hitherto a part of the central budget.

It would have been appropriate to increase the share of the states to 50 per cent when Rs. 2.4 lac crores defence fund was earmarked before allocation to the states. While the Centre was willing to distribute 42 per cent share as per the recommendations of the Fourteenth Financial Commission, it had decided to cut its share of national security expenditure at the time and distribute to the states.

The Centre had announced in the Lok Sabha that the share of the states was limited to 35 per cent between 2015 and18. The reduction in tax share distribution to the states was Rs 7.43 lakh crore more than the 14th Finance Commission had recommended. In such a case, what would be the net effect of the so-called latest 41 per cent share? The distribution of proper shares to the states in the taxes levied by the Centre is not anyone's charity... it is a constitutional right!

The Justice Poonch Commission has urged the Centre to keep the transfer of discretionary funds to a minimum and to scrutinize the overall allocation process. Ignoring that key point, the Centre's inclusion of incentives on the basis of states' performance in the Fifteenth Economic Commission is objectionable.

Given the 15 per cent weightage to the population, the Andhra Pradesh and Telangana states, which have excelled in population stabilization, are naturally disturbed.

Though it is being said that a special formula has been devised to cover the damage - until the action is taken report and full recommendations are made public the wait is inevitable.

States like Maharashtra have long been questioning about the amount deposited in the central treasury in the name of various tariffs without being included in the division fund. The centre is holding various cess and surcharges.

According to the revised estimates for the 2019-20 financial year, the Centre's revenue collection will be Rs 21.6 lakh crore. Rs 6.6 lakh crore, which is the share of the states, accounts for only 30.5 per cent of the total tax revenue! While Andhra Pradesh and Gujarat are seeking at least 50 per cent share in the division fund, the shrinking of revenue due to various conditions and declining grants are pushing state governments into a dilemma.

In order to maintain the federal spirit prophesied by Dr Ambedkar intact in the country, reasonable formulae for the distribution of shares in taxes must be formulated.

If only the Centre takes enough precautions to protect the states from undue financial burden, all-round progress of the country will be possible and everyone will reap its fruits!