It was an unusual spectacle as the national capital witnessed protests by Chief Ministers of two Southern states — Karnataka and Kerala, on successive days. Joined by members of respective governments, the leaders were demanding for financial rights of the states, charging the central government with inadequate allocation of funds due to it and also . restricting ability to borrow
The protests, staged first by Chief Minister Siddaramaiah of Karnataka on February 7 and the following day by neighbouring state Chief Minister Pinarayi Vijayan saw a third state Chief Minister from southern India, Stalin of Tamil Nadu extended solidarity.
All of them poured scorn over the attitude of the Central Government of Prime Minister Narendra Modi towards the states. With the three states bound by a common cause, they are complaining that welfare and development works were being hampered by the squeeze.
Countering the charge, Union Finance Minister Nirmala Sitharaman asserted devolution of States’ share was done as per recommendations of the 15th Finance Commission which were finalised after consultations and the claims made by the States were misleading.
Well Timed
These protests were timed around two developments. The last Budget session of the current Lok Sabha and deliberations of the new Finance Commission under Arvind Panagariya having just started the exercise on the question of devolution of funds. The recommendations of the 15th Finance Commission are typically valid till the end of the next financial year.
The move to bring the issue to the fore at a national level can be seen from the prism of politics as well as to build a public opinion on the state of affairs in the States. Though the BJP-led coalition government has the support from some parties in the South, the perception of the governments in some of the states led by parties opposed to the BJP is that they were being forced to undergo financial hardships.
Population Parameter
A common grouse being flagged for the past few months is that the Central government was not releasing funds due to these states as per the recommendations of the 15th Finance Commission; besides the larger issue of the allocation on the basis of population itself.
The basic premise, since the time the Commission set up five years ago decided to depend on the population based on the 2011 Census rather than 1971, followed earlier. This factor weighed against the southern states. The contention being that southern states which performed better to contain population now stood to lose. The counter-argument that the formula incorporated measures to take care of demographic adjustment has not found much traction.
Over the past few months, governments of these states have been flagging this and attended issues with the Centre. For instance, the previous Telangana government mentioned that as against 41% devolution of Central taxes decided by the Finance Commission, the state was receiving around 30%. The state government also charged the Centre with raising more by the way of cess and surcharges, which it was not obliged to share.
GST Compensation
This claim as also of Karnataka was rejected by the Finance Minister who said the calculation omitted to mention that a large part of the Cess comprised GST Compensation component which the Centre cannot retain and goes entirely to the states.
For instance, out of a total of ₹ 4.81 lakh crores of Cess and Surcharge collections in financial year 2021-22, an amount of ₹ 1,04,769 crores was towards Compensation cess which was released exclusively for the States. According to one set of data, the share of states in central taxes in 2022-23 rose to ₹ 8.29 lakh crore from ₹ 5.95 lakh two years ago.
Yet, the share of states like Tamil Nadu, Kerala and Andhra Pradesh in total devolution of central taxes remained around the levels now when compared with previous allocations.
Limiting the Borrowing
Apart from complaining about funds squeeze, Kerala government is of the view that the Centre was invoking a provision under the Constitution limiting its ability to borrow, casting a shadow on fiscal federalism. The Kerala government has knocked the door of the Supreme Court, the second state after Punjab which too decided to adopt the legal route.
Ironically, while the current development with southern states in focus led to voices underscoring the North-South divide, the presence of Punjab Chief Minister Bhagwant Mann and former J&K Chief Minister Farooq Abdullah reflect the spread of the sentiment against the Central government’s fiscal approach.
While the power of the purse is the central issue, attended to it are other issues of what would happen when delimitation of electoral constituencies would take place. The current freeze on delimitation is set to expire by 2025. The apprehension is that states especially in some Hindi-speaking belt whose population grew at a faster clip than those in the south, will gain greater seats in Parliament putting those who worked to limit the growth of population at a great disadvantage.
For a government that promises Cooperative Federalism, the manner in which the current situation is emerging would require deft handling beyond iterations from those tasked to dispersing funds. Smart book-keeping and standard bureaucratic responses can appear convincing on the surface, yet political parties do understand the need to battle perceptions built around narratives set by parties on either side of the divide.
—The author, K V Prasad, is an author and political analyst. The views expressed are personal.
Read his previous articles here (Edited by : C H Unnikrishnan)
First Published: Feb 10, 2024 10:35 AM IST
