Punishing the performers

The 15th Finance Commission report is unfair in terms of devolutions and undermines the federal spirit

The NDA government needs to take an honest relook at the report of the 15th Finance Commission (FFC), already tabled in Parliament, in view of the genuine concerns that some of its key recommendations amounted to undermining the federal spirit. Progressive and performing States like Telangana rightly feel that they have been short-changed in terms of devolutions. At a time when there is a need for greater freedom and flexibility to the States in matters of financial management, the tendency has been to promote over-centralisation of powers. As a result of such a skewed model, the consistently high performing States like Telangana suffer gross injustice. The FFC recommended reduction in the States’ share of the divisible pool of central taxes from 42% to 41%. With the Centre accepting the report, Telangana’s share from the divisible pool of central taxes will be slashed by Rs 2,381 crore. This is unfair for a State that has been setting benchmarks in balanced development and even getting validation from Central agencies, including the Niti Aayog. It is unfortunate that despite Telangana contributing a lion’s share to the country’s economy, the Centre is showing discrimination in the allocation of funds and reducing the State’s share in the Central taxes. The drastic reduction in the funds for urban local bodies could adversely impact Telangana, which is in the process of rapid urbanisation. Following the FFC report, the tax share of most southern States has come down while the share of Bihar, Madhya Pradesh, Punjab, Maharashtra, and Gujarat has gone up.

Never in the recent past the threat to federalism was as serious as it is now with the Centre systematically usurping the rights of the States and taking unilateral decisions. The conditions imposed by the Centre for increasing the borrowings have been stifling and would lead to infringing on the rights of the States. Also, the performance-based incentives suggested by the Finance Commission would actually end up robbing the States of their freedom to make independent decisions. Any conditions on the States’ ability to borrow will have an adverse effect on the spending by the States, particularly on development. This will surely undermine the spirit of cooperative fiscal federalism. Moreover, it does not hold the Union government accountable for its own fiscal prudence and dilutes the joint responsibility that the Union and States have. In the last few years, there has been a growing tendency to centralisation of powers, be it in the implementation of the Goods and Services Tax (GST) regime, devolution of taxes to the States or pushing through the controversial farm laws that are not only detrimental to the interests of farmers but also amount to usurping the powers of the States.

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