15th Finance Commission: Why the Southern States are protesting?

The Southern States are mainly protesting over a particular term of reference of the new 15th Finance Commission. It is the use of 2011 census as the basis of allocation of tax resources between the states.

(Read: Explained: Finance Commission and its functions)

The Southern states have claimed that they already contribute more to centre’s funds than what they receive. The use of 2011 census as the reference will lead to even lower allocation of resources.

Which population census was used as the reference earlier?

Before 1976, the population figures as per the latest available census were used.

In 1971, India adopted family planning measures. Therefore, the constitution was amended in 1976 to incentivise the states to curb their population growth rate.

As per the constitutional amendment (42nd amendment), a freeze was imposed on the population figure of 1971 census up to 2001. It means that the 1971 population census was required to be used for allocation of resources till 2001.

In 2000, the freeze was extended till 2026 through the 84th amendment of the constitution.

Apart from the allocation of resources, the population census is used for the following:

  • Calculation of the value of the MLA ‘s/ MP’s vote in the presidential election
  • Allocation of the number of Lok Sabha seats to each state.
  • Total number of Assembly seats in a state
  • Reservation of the ST and SC in the state  Assembly

Why are the Southern States protesting?

One of the terms of reference of the 15th Finance Commission is that the 2001 census will be used for distributing resources amongst the states. So, higher the population in 2001, larger the resource allocated.

The Southern States have been protesting as their population growth rate has been lower than the other states after 1971. This could lead to lower allocation of resources to the states which have been effective at implementing family planning measures.

Is the concern of the Southern States legitimate?

First things first. this isn’t a north-south debate.

States like Gujarat, Maharashtra, Punjab & Haryana also contribute more than what they receive from the centre. Also, the fertility rate in some of the poorer states like Orissa and West Bengal is lower.

It is about equitable distribution of resources to enable provision of a comparable level of basic services across all states. In almost all countries, the resources are redistributed from the richer states to the poorer states for balanced development of the country. 

Even within a state, richer cities pay more taxes than the poorer villages,

In fact, in India, if we look at it in per capita terms, both Bihar and Uttar Pradesh received lesser transfers from the Centre in 2016-17 compared to Andhra Pradesh, Karnataka and Kerala.

Hence, in per-capita terms (taking population into consideration), India is redistributing lesser resources to its poorer states.

India’s population was 548 million as per 1971 census. Currently, it is over 1.35 billion

The use of the 2011 population census will reflect the more recent population of the countries while allocating resource and enable the provision of a comparable level of basic services across all states.

Moreover, the population is just one variable that determines resource allocation. There are other indicators as well and the final amount disbursed will reflect all of them.

The terms of reference of the 15th Finance Commission states that it may consider proposing measurable performance-based incentives for states. One of them is the efforts and progress made by states in moving towards replacement rate of population. They will also assess expenditure incurred while implementing populist measures.

The Commission will define populism and recommend incentives for states that do not resort to them

The Commission shall also review the fiscal discipline efforts of the Union and the States, and recommend a fiscal consolidation roadmap for sound fiscal management,

Besides. the use of 2011 census is not unprecedented. Even the 14th Finance Commission recommended that 10 % of the total resources available will be allocated as per the state’s population share as per 2011 census. (and 17.5 % as per 1971 census)

To conclude, the use of 2011 census might lead to a reduction in resources available for some states, but it is not a north-south debate as it is made out to be. Almost all countries have to maintain a balance between equity and efficiency when it comes to distributing its limited resources.

If you liked this article, don’t forget to share it with your friends



Have any Question or Comment?

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to Economyria by Email

Please enter your email address:

Subscribe to Economyria’s Feed