New Delhi: The Narendra Modi government’s decision to change the terms of reference of the 15th Finance Commission through a Presidential Order is aimed at further squeezing the revenue share of states, without even consulting them, various finance ministers of non-BJP ruled states and Opposition leaders said at a seminar here on Saturday. In particular, most leaders severely critical of the Bharatiya Janata Party-led Central government’s move to create a defence and internal security fund by dipping into financial resources of the state.
The 15th Finance Commission is scheduled to submit its report by November 30. On July 29, the Modi Government suddenly modified the terms of reference of the Commission, which has invited widespread criticism from Opposition-ruled states, as they were not consulted on the issue.
The objective of the Finance Commission is to decide how much taxes and resources – collected by the Central government – will be transferred to each state. After considering factors like state’s population, average income etc., a formula is created
However, the Centre’s sudden decision to bring in ‘additional’ terms of references of the 15th Finance Commission, has raised several concerns among states, which were aired at national seminar in the Capital, organised by the Gulati Institute of Finance and Taxation, an autonomous institution under the Kerala government, ruled by the Left Democratic Front.
Several finance ministers of non-National Democratic Alliance state governments, such as Thomas Isaac from Kerala, Manish Sisodia from Delhi, and former Prime Minister Manmohan Singh, former Finance Minister of Jammu & Kashmir, Haseeb A Drabu, Venkatesh Athreya, former Professor of Economics, Bharathidasan University, Harsh Mander, Director of Centre for Equity Studies, and Sitaram Yechury, general secretary of Communist Party of India (Marxist) were among the speakers.
Most of the participants in the seminar criticised the creation of a defence and internal security fund by the Modi government. The Centre has decided to set aside money from gross tax revenues before sharing these with the states, thus resulting in fund cuts of states. Criticising this move, Yechury said it was a direct attack on the idea of “cooperative federalism”, adding that such additional changes at the eleventh hour were “unconstitutional.”
Flaying the Centre for not taking the states’ views before changing the terms of reference of the 15th Finance Commission, former prime minister Manmohan Singh said that such unilateralism was not good for a federal polity.
“It's rather odd for the government to come up with additional terms of reference. Most of the states have already gone to the Commission with their requirement and now you impose another terms of reference on the commission, which would complicate its work,” he said.
Former J&K Finance Minister Haseeb A. Drabu, who was also associated with the Tenth Finance Commission, said the Centre was trying to render the state governments financially powerless as their revenue shares would be cut.
Speaking to Newsclick, Drabu said: “The government is doing so under the garb of creating funds for defence and security because as we all know, nowadays, nobody will dare to question that.”
While many speakers shared their apprehensions over the erosion of fiscal autonomy of states, Delhi Fm Manish Sisodia spoke about the hypocrisy of the Modi government in not including Delhi government in the Finance Commission.
Currently, devolution of central taxes is only for the state governments and not Union Territories. The UTs get grant directly from the Union Home Ministry.
However, recently in a special financial ‘manoeuvre’ for Jammu and Kashmir – which was recently made a UT – the Centre has allowed its inclusion in the Finance Commission. The move has raised hopes for other UT s as well, such as Delhi and Puducherry, who have been demanding the same for years.
According to Sisodia, the Centre has always played a double game with the Delhi government by considering it as a state when it comes to form State Finance Commissions, however not including it under the Centre’s Finance Commission.