15th Finance Commission ToR: Does this mark the end of J&K's residual financial autonomy?

Arjimand Hussain Talib
Srinagar, Publish Date: May 24 2018 11:13PM | Updated Date: May 24 2018 11:13PM
15th Finance Commission ToR: Does this mark the end of J&K's residual financial autonomy?

The Terms of Reference (ToR) of the 15th Finance Commission have created ripples across many states in the country. Several southern states have rejected the ToR, calling it "discriminatory and antithesis to the spirit of cooperative federalism".

The way the central government is seeking to reshape tax devolution system is feared to infringe upon India's established constitutional order of distribution of resources from the union to the states. Many states and economists see the terms of reference as a potential instrument in generating a discretionary space for the union government in deciding the quantum of tax transfers to states.

Interestingly, on May 17, 2018, Finance Ministers of six States met President Ram Nath Kovind and submitted a memorandum demanding 13 amendments to the Terms of Reference of the 15th Finance Commission.

On Thursday, Kerala Finance Minister T.M. Thomas Isaac said at the Indian Express Ideas Exchange Program that if the ToR were not changed, states would virtually be reduced to “glorified municipalities.”

“The terms of reference violate the federal principle as enshrined in the Constitution, erode the autonomy of all States and bring significant financial hardship to all States,” the memorandum submitted by Finance Ministers of Kerala, Delhi, West Bengal, Punjab, Andhra Pradesh and Puducherry — T.M. Thomas Isaac, Manish Sisodia, Amit Mitra, Manpreet Singh Badal, Yanamala Ramakrishnudu and V. Narayanswamy states.

The Ministers have said the terms of reference seek to control “populist measures.” The memorandum has demanded that this be deleted promptly. 

The States and the Union Territory concerned have been arguing that it is for the popularly elected governments to decide what is ‘populist’ and what isn’t.

The other amendments sought include deletion of the reference to Direct Benefit Transfers (DBT). The 15th finance commission has said that the States will be assessed on progress made by them in promoting DBT. 

The FMs also want the reference to “flagship schemes of the government of India” to be deleted. The TOR says that “achievements in the implementation of flagship schemes of the government of India” will be criteria to determine a State’s share from Central funds. The Ministers have argued that this is blatantly against the federal values in the Constitution.

Jammu & Kashmir government has so far not commented on the issue. There have been no public debates on the potential implications of the ToR on the state.

 

Ziraat Times wrote to the Finance Ministry seeking its views on the issues raised by the six states on the ToR. Till this report was being drafted on Saturday, no response was received.

 

What Jammu & Kashmir is aiming for the 2020-2025 period:

Officials in J&K government, preferring anonymity, told Ziraat Times that Jammu and Kashmir is likely to ask for about Rs 1 lakh crore award from the 15th Finance Commission. The State Government is planning to seek department-wise allocations from the 15th Finance Commission, the details of which are not known as of now.  Sources told Ziraat Times that the Commission might also take into consideration the spending status vis-a-vis the 14th FC award to J&K. 

The 15th Finance Commission Award will be applicable from April 1, 2020 for a period of five financial years i.e. up to March 31, 2025.

Pertinently, the 14th Finance Commission had awarded Rs 60,000 crore to J&K, effective from April 1, 2015 to March 31, 2020.

 

The 15th Finance Commission, comprising of N. K. Singh (chairman), Shaktikanta Das and Anoop Singh as full members and Ramesh Chand and Ashok Lahiri as part time members was scheduled to visit the State from April 11-13. However, the visit has been postponed, and is now expected to be held some time in May or June, 2018.

 

Among 11 revenue-deficit states, while Jammu and Kashmir got Rs 60,000 crore, Himachal Pradesh received Rs 40,625 crore and Nagaland Rs 18,475 crore.

 

Union government response

 

Taking note of the reservations of some states on the Terms of Reference, the N.K. Singh-led 15th Finance Commission has set up a six-member council to “advise and assist” it on the ToR and “help in broadening the commission’s ambit and understanding”.

 

What politicians have to say:

 

 

Rahim Rather (Former Finance Minister, J&K and senior leader of National Conference) 

This Government seems to be clueless about the implications of the 15th Finance Commission on Jammu & Kashmir. There is hardly any coordination and accountability in the present government.  During our government, we would meticulously prepare our memorandum for the Finance Commissions, make strong presentations and ensure that the state's autonomy in making expenditure is maintained. The present government doesn't seem to pay attention to details. 

 

The fact that it hasn't spoken about the 15th Finance Commission Terms of Reference (ToR) in itself is the proof that it has no idea what is coming and how to engage with the commission on the points in the ToR that have a potential of adversely impacting Jammu & Kashmir state's ability to spend the award money. 

The state is in a situation wherein a budget of Rs 95,000 crore is presented, which is followed by the implementation of 7th Pay Commission recommendation, for which resources are being drawn from some centrally sponsored schemes. One of the biggest challenges with the present government is the frequent change of officials in the Finance Ministry. Being a highly technical area you cannot change key decision-making officials every now and then and expect a continuum in policy making system.  It is a sorry state of affairs. 

 

Senior Congress leader, G. N Monga 

Earlier terms of reference of the finance commissions were balanced which gave leverage to both centre and state. But now it seems that the BJP government at the centre wants to have all the powers in their hand. They have massacred federal cooperation between state and centre.

“Current terms of reference are intimidating to state governments. Many state governments have raised their objections to it. We feel that J&K government should lodge their objection otherwise it would become precedence that funds will be released not on fiscal criteria but on political consideration.”

 

Dr Haseeb Drabu (Former Finance Minister, J&K Govt and MLA, Rajpora constituency)

The mandate given to the 15th Finance Commission is yet another example of this policy stagnation. Even though the institutional landscape of Indian federalism has been changed for good—Planning Commission, the extra-constitutional intruder, wound up and the first genuinely federal institution, the goods and services tax (GST) Council created—the terms of reference (TOR) of the 15th Finance Commission are disappointingly routine and ritualistic. Indeed, the TOR are also dangerously regressive and inimical to federalism.

The manner in which the Union and the states have pooled their tax sovereignty to create a new indirect tax regime ought to have been the cornerstone of the TOR. Indeed, this would have helped the 15th Finance Commission build on the emerging federal compact of cooperative federalism in sync with the new political economy of India defined by the rise to dominance of the states.

Para 4, sub para 6 of the TOR asks the Commission to have regard to: “The impact on the fiscal situation of the Union Government of substantially enhanced tax devolution to States following recommendations of the 14th FinanceCommission coupled with the continuing imperative of the national development program including New India – 2022;”

The hike to 42% in the devolution to states by the 14th FC was part of a package; the expenditure underwriting done by the centre was correspondingly to be reduced.

This was done not only to ensure that the system of vertical transfers is neater, focusing on the revenue sharing. The idea, an operationally significant one, was to give states greater expenditure flexibility by reducing the funding of centrally sponsored schemes. It is important to note that in the scheme of 14th FC, the aggregate flow of resources was more or less calibrated to remain at the earlier level of 61 odd percent.

And what is the “New India 2022”? Is it a constitutional obligation for which resources have to be earmarked? To the extent that the TOR refer to defence, or internal security, it is acceptable as these are constitutionally assigned areas. But the same cannot be said about a programme or a scheme.

The same mindset reveals itself in the TOR on performance-based transfers. This amounts to making statutory transfers conditional transfers. 

Whatever the FC devolves to the states is theirs by right and cannot be linked to performance or behaviour. It is instructive to look at the conditions in the TOR: “control or lack of it in incurring expenditure on populist measures”. Who decides what is populist? If a state replaces various welfare schemes by a Universal Basic Income programme, it can be branded as populist. If a 33% interest subvention is given to borrowers, as has been done by J&K, after devastating floods followed by eight months of civil strife, is it populism or pragmatism? And why should this not apply to centrally sponsored schemes? Or for that matter why doesn’t it apply to government of India (GoI) itself?

As if this weren’t enough, the TOR enjoin to factor in any “conditions that GoI may impose on the States while providing consent under Article 293(3) of the Constitution.” These types of open- ended TOR can easily turn the emerging cooperative federalism to coercive federalism.

 

Muhammad Yaseen Khan

Chairman, Kashmir Economic Alliance, Muhammad Yaseen Khan while commenting on the points of reference of 15th Finance Commission, said “BJP government has become arrogant. We have seen in Kashmir how by implementing GST our fiscal autonomy was taken away. Similarly now with these conditions centre wants to make funding more based on political considerations then on developmental requirements. State government should raise its objections and don’t act as mute spectator to it.”

“PDP government must be vocal and join chorus raised by other states regarding the 15th finance commission’s points of reference.”

 

Courtesy: Ziraat Times (https://ziraattimes.com)

 

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