Finance Ministers of the southern States will meet here on Tuesday to discuss the terms of reference (ToR) of the 15th Finance Commission which they feel will have ‘serious consequences on State finances’.

The meeting assumes significant in the context of Chief Ministers of Andhra Pradesh and Karnataka joining forces to hit out at the Modi government for disproportionate allocation of funds to States.

‘Freeze ToR’

The TDP, headed by Andhra Pradesh Chief Minister Chandrababu Naidu, had walked out of the ruling NDA dispensation at the Centre, accusing the Centre of using revenues from the South to fund development in the North.

Ministers of all States, except Telangana, have confirmed participation, Kerala Finance Minister Thomas Isaac told newspersons here.

He demanded that the Centre freeze the ToR, which tends to restrict the Commission’s freedom to discharge its constitutional obligation and threaten to reduce the fiscal leeway of the States.

They ‘go against the spirit of federalism and deprive the States of the freedom to initiate major development initiatives. States which have made best efforts in addressing backwardness and implementing birth control measures may get penalised’.

“Drawn up in a arbitrary manner, the ToR should be frozen and the suggestions of the States given weightage. The proposal to use the 2011 census as the basic data for devolving 30 per cent of resources would amount to penalising some States.”

Worst-hit States

Kerala and Tamil Nadu, which have effectively curbed population growth and addressed social, educational and economic backwardness would be the worst hit.

The BJP at the Centre was using the Commission to enforce its political agenda to do away with programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, Isaac said.

Use of 2011 census population as against the usual practice of 1971 population (from Seventh Finance Commission onwards) will have tremendous impact on the size of devolution of southern States, an independent analyst said.

The ToR requires the Finance Commission to examine whether there should be a revenue deficit grants at all. This is unwarranted given the growing development needs of the States and expanding demands of people.

If post devolution grants are stopped, it would cripple State finances in a substantial manner. The ToR also has implications for FRBM Act recommendations in terms of expenditure compression.

When all States have passed the FRBM Act, the ToR seeks to impose conditions of borrowing under Article 293 (3), which constrains the borrowing space of States.

Similarly, the southern States are objecting to the manner in which spending priorities are sought to be restricted under the ToR. Terms of incentivising States are unclear under the ToR. They feel that GST-based conditions should take into account the rise in vertical inequity between the States and the Centre due to equal apportionment of rates, rather than going into administrative details.

Meanwhile, the conclave of the Finance Ministers does not seem to have any reference to the allegedly raw deal meted out by the ToR to the local self-government institutions.

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