Centre depriving performing states of resources, laments Yanamala

Amaravati: The approach of Central government indicates its intention to use a heavy hand in disciplining the States through Article 293 (3), Finance Minister Yanamala Ramakrishnudu said here on Monday.

This is nothing but strangulating the States from both sides, Yanamala said at the Finance Ministers’ conference. He presided over the conference. He explained that in case of borrowings, the Centre is inclined to adopt the debt-GDP ceiling as recommended by FRBM review committee.

A debt to GSDP ratio of 20 per cent would greatly limit the State governments’ borrowing needs and has the potential to curtail social sector expenditures.

To maintain debt-GSDP ratio close to 20%, the States would have to limit fiscal deficit to 1.7% of GSDP by 2025. In order to compel States to limit borrowings under the ceiling proposed by FRBM review committee, the Government of India would put additional conditions on borrowing by States, he opined. Hence, it has now asked the 15th Finance Commission to see how this can be done.

On the other hand, the use of population from Census 2011 by 15th Finance Commission with a greater weight for determining the allocation of funds to the States would cause great injustice to the States.

This approach would penalise States which have shown declining fertility rates and lower population growth over the past four decades, explained Ramakrishnudu.

The 14th Finance Commission, introduced idea of using the population data from census 2011 for the first time in a small way by giving it a weightage of 10% while arriving at the formula for devolution of the divisible tax pool. Even this itself adversely affected fund flow to states, which implemented the family planning programme in earnest and successfully, he pointed out.

The Chief Ministers, Finance Ministers and officials of Finance departments of seven states, including hosting state Andhra Pradesh participated in the conclave, to deliberate on the contentious Terms of Reference (ToR) of the Fifteenth Finance Commission.

Further in his presidential speech, Ramakrishnudu maintained that if funds allocation is reduced, it is bound to increase fiscal and revenue deficits of States.

The division of the powers of taxation and borrowings between the Centre and the States are well established in the Constitution, but the use of 2011 Census will reduce the devolutions to the better performing States, he pointed out.

The States can rarely match their resources with the development needs. States are required to put in place the necessary enabling conditions such as the provision of adequate infrastructure to attract private investments. This involves incurring capital expenditure, he said.