‘There Will be Public Backlash’: Kerala FM on Govt Funds to States

Kerala’s Finance Minister highlights the concerns that the southern states have over the 15th Finance Commission.

Kerala Finance Minister Thomas Issac highlights the concerns that the southern states has over the 15th Finance Commission.

(Photo Courtesy: The News Minute)

In an attempt to bring unity among the south Indian states, Kerala’s Finance Minister Thomas Isaac called for a meeting with his southern counterparts on 10 April in Thiruvananthapuram. This was in response to the dissenting voices across the south over the 15th Finance Commission’s Terms of Reference (ToR).

The 15th Finance Commission is a body that determines how much tax money collected by the Centre is allocated to various states in the country. While there are multiple parameters to distribute how the tax revenue is shared, population is one of the key determinants.

The reason south Indian states are opposing the Commission is because the ToR has recommended using the 2011 Census to calculate the population as against the 1971 Census, which was used by previous commissions. Southern states, which have controlled their population over the years, argue that changing the baseline will affect them.

Kerala’s Finance Minister Thomas Isaac told TNM about the agenda behind the 10 April meeting and highlighted the concerns that the south has over the Terms of Reference in the 15th Finance Commission.

'Exchange of Ideas, Not a Political Meet'

Speaking about the meeting, Isaac says their intention is to have an exchange of ideas among the states.

We may not even have a common agenda, but we will be exchanging our views. It’s a platform to raise views, a platform to raise concerns. Our intention is not to project it as a political issue, we have not invited political parties for the meeting, but state governments.

Kerala’s Finance Minister Thomas Isaac

While the minister had earlier written to and personally called his counterparts in the other south Indian states calling for a meeting, Isaac said that Andhra Pradesh and Tamil Nadu have not confirmed their participation for 10 April.

“There are ministers from these states, who are willing to participate in the meeting, but they have to take a political decision regarding that,” says Isaac.

Telangana, Karnataka and Puducherry have confirmed their presence in the meeting in Thiruvananthapuram.

The Kerala FM notes that even if the turnout of the meeting isn’t as expected, the purpose is to stir public debate.

“The objective is to make this issue a public debate. People have now begun thinking that this is something important, though it may take time for the masses to realise the implication of such a move,” says the FM.

'There Will Be a Public Backlash in 2019'

Isaac, who is a well-known economist, explains that the ToRs will penalise not only south Indian states but also other states, who have successfully managed to control their population.

“The population growth of southern states since 1971 to 2011 is 50 percent, but that has increased by 150 percent for some states like Rajasthan, Bihar. It affects West Bengal, Punjab… Already political parties in some states have raised the issue. Karnataka has come out very strongly against it, Andhra has come out against it,” he says.

Explaining that Tamil Nadu will be the worst affected by the ToR’s recommendation to use the 2011 Census, the Kerala FM says, “It is Tamil Nadu which is the worst affected by this as the population growth in the state is much less. The share of Tamil Nadu, if population is kept as the criteria, will be reduced from 7.59 percent to 6.04 percent. Andhra may lose around Rs 40,000 crore. Kerala, in a year, would lose around Rs 20,000 to Rs 30,000 crores.”

Isaac also went on to slam the Centre’s recent justification regarding the suggestion to use the 2011 Census over the 1971 Census, pointing out that the 14th Finance Commission had also suggested the same. However, the Commission eventually decided to give 10 percent weightage to the 2011 Census and 17.5 percent for the 1971 Census.

“The family planning programme in 1977 was launched with the assurance that the central tax share to the states won’t be reduced if population growth is controlled. The National Development Committee in 1979 and National Population policy in 2000 also repeated that. But now that population is getting more attention, the Centre vaguely understands the concept. It’s kind of penalizing the states which have performed well in the population control. It’s a setback for the development these states have achieved in the health and education fields,” he argues.

While noting that Finance Commissions have in the past asserted their autonomy, Isaac alleges that the Centre wants to undo what the 14th Finance Commission has put in writing.

“Explicit reference has been given to the 15th Finance Commission to assess the implications of the recommendations of the 14 Finance Commission on the Central government’s fiscal capacity,” states Isaac.

'Will Affect State's Development Ambitions'

Among their recommendations, the ToRs of the Commission have also suggested incentives for states who maintain fiscal discipline.

“ToRs have attempted to make the debt of the states 20 percent of the GDP. Going by this the revenue deficit of the state which is 3 percent now, should be reduced to 1.7 percent by 2022-23. It has also attempted to control the state guarantee for public debt. These all will affect the development ambitions of the state,” he said.  

States like Kerala and Tamil Nadu, which is known for providing a number of freebies, have reported high revenue deficits in the past, with revenue expenditure outshooting revenue receipts.

One of the clauses in the ToRs states that state governments will be incentivised for “Control or lack of it in incurring expenditure on populist schemes.” But leaders like the Kerala FM argue that members of the Commission, who are unelected, should not have the authority to decide what is populist. A “populist” scheme, he says, is determined by the state government based on the prevailing situation.

“How can it be justified to entrust the task of deciding the populist policies for each state with a commission? The populist measure for each state is determined based on the particular situation existing, based on the achievements the states have made,” Isaac argues.

One of the counter-arguments to those opposing the ToR’s recommendations is- should states which are performing well ask for more? Isn’t it natural that richer states be asked to pitch in to help poorer ones?

Isaac says, "Yes, regional imbalances should be corrected but their development should also be recognized."

But he warned that if the Finance Commission is not cautious enough in its recommendations it has the potential to seriously disrupt a state’s finances.

Isaac also voices the bigger fear that states like Kerala have – that if the 2011 Census is used in the 15th Commission, it would be used as the basis to redistribute Lok Sabha seats in the future. This distribution of parliamentary seats was fixed using the 1971 Census and this arrangement has not been changed over the years. This arrangement, however, comes up for renewal in 2026. And if 1971 is no longer used as the base year to calculate population, Isaac fears that this could be a “big threat to the federal structure of the country.”

(This article was originally published in The News Minute, and has been republished here with permission.)