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ECONOMY:
11th FINANCE COMMISSION
Perform
or Perish
Rich
states protest against the precedence to poverty over performance in allocation
of funds
By Rohit
Saran
 Let's
see this as a story of a farmer and his four sons. At the end of every
month, the sons-all having their own plots of land-would pool their earnings
and bring it to the father for distribution. The farmer never distributed
the earnings equally among his four sons. Reason: the four pieces of land
were not equally productive, leaving two of his sons less prosperous than
the others. The farmer would give his poorer sons a larger share of earnings,
hoping they would invest the money in their land, enhance its productivity
and one day catch up with their richer brothers. But the economic disparities
between the sons only widened, forcing the farmer to dole out more and
more funds to the poorer ones. Till the rich sons got restless and demanded
to know why they should be penalised for their brothers' poverty.
The Eleventh
Finance Commission (EFC) is grappling with a similar question right now.
Mingled with political posturing and compulsions of a coalition government,
the question becomes trickier to solve. Like the farmer in our story,
the EFC is under attack for doing what 10 finance commissions before it
have done-transferred money from rich states to the poor so that income
disparity between them eventually narrows down. Such flow of funds from
the rich to the poor has been the hallmark of most federations throughout
history and across the globe. Explains Planning Commission adviser N.J.
Kurian: "Finance commissions have been like dentists, filling gaps
in income and resources." Constituted every five years, finance commissions
perform two basic tasks: fix the share of state governments in the Central
tax revenues, and determine a method for distributing that revenue among
individual states. The current uproar over the EFC recommendations mostly
touches on the second aspect.
In the past,
finance commissions bifurcated the distribution of funds among states.
A major portion of the funds was allocated to states based on a formula,
and a small share was kept aside to devolve only among financially troubled
states. The EFC has ended the bifurcated system and clubbed all revenues
from Central taxes under a common pool. Out of the pool, it earmarked
29.5 per cent as the states' share. The share of each state was then decided
on the basis of factors like the state's population, its per capita income,
area, infrastructure, tax mobilisation and fiscal discipline.
In the final
award of the commission submitted in July this year, poor states got a
larger percentage share of funds than they had received under the Tenth
Finance Commission (TFC). For instance, the percentage share of the four
poorest states-Uttar Pradesh, Bihar, Madhya Pradesh and West Bengal-in
the Central taxes rose to 51.3 per cent from 46.2 per cent under the TFC.
What's wrong
with that? Ask the rich, or as Andhra Pradesh Chief Minister N. Chandrababu
Naidu terms them, the "reforming and performing" states. To
be sure, the unprecedented opposition to the EFC recommendations is more
an expression of an increased assertiveness by the states in national
politics than a vote against the commission. That is why the opposition
cuts across political or regional lines. Asserts Karnataka's Congress
Chief Minister S.M. Krishna: "The EFC report is a big shock and disappointment."
Punjab's Shiromani Akali Dal, a partner in the NDA coalition Government
at the Centre, is even more belligerent. "Only the EFC has the distinction
of cutting the share of performing states. There shouldn't be a premium
on poverty," contends Captain Kanwaljit Singh, finance minister of
Punjab.
Haryana
Chief Minister Om Prakash Chautala, another NDA ally, wants the EFC report
to be kept in abeyance till a meeting of states under the National Development
Council is held. Gujarat, a BJP-ruled state, and Tamil Nadu, a state ruled
by another NDA partner, want the EFC report modified. Not surprisingly,
the only support for the EFC has come from some of the bitterest opponents
of the NDA, Bihar and West Bengal.
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