Uniquely placed

Uniquely placed

Article:

1. Ashish Kundra, IAS officer, Government of Mizoram, pointed out that the finance commission must heed the norhteast’s challenges.

Important Analysis:

2. The 15^thFinance Commisssion is in the process of figuring out a fair formula for the distribution of net tax proceeds between the Union and the States, and among States.
3. However, the 14^thFinance Commission pointed out:

• The commission had adopted a formula based tax devolution approach, apart from grant-in aid for local bodies, disaster relief and post-devolution revenue deficit grants.
• The share of devolution to the states was enhanced to 42% from 32% which gave the states considerable flexibility.
• The 14th FC accorded 27.5% weight to the population (of which 17.5% was of the 1971 population), 15% to area, 7.5% to forest cover and 50% to income distance.
• Larger States with larger populations have a greater requirement of resources.
• Income distance was adopted as a proxy for fiscal capacity, and forest cover was given weightage for the first time, underscoring ecological benefits.
• No State-specific grants were recommended

4. Northeast States:

• The author pointed out that the Northeast represents a distinct entity for developmental planning and has a special category status. These states faces the following challenges, which need to address in devolution formula.

a)Low levels of human development indice

b) A low resource base.

c) Poor connectivity and infrastructure.

d) Northeast also bear burden of natural disaster.

e) The Energy and Resources Institute has computed an index of vulnerability of all States. The disaster vulnerability index is highest for the northeast.

• A 20% cost disability was allowed by the 13th FC while allocating grants for road maintenance.

f)Maintenance of assets, such as rural roads under the Pradhan Mantri Gram Sadak Yojana, require huge expenditure, especially in hilly States.

1. g) The region also has the highest forest cover and represents the largest carbon sink nationally.
2. The Centre ministries earmark 10% of their allocations for the Northeast.

5.10% of tax proceeds could be earmarked for vertical devolution to the region.

6.A number of centrally sponsored schemes have been rolled out where the obligation of State share is huge, adding to revenue expenditure.

7.While, the 13the Finance Commission depicts the different position of the northeast while arriving at the formula for horizontal devolution. It highlighted the following pointers:

•  Its twin guiding principles were equity and efficiency.
• It accorded 47.5% weight to fiscal capacity distance.
• Per Capital GSDP was taken as a proxy for fiscal capacity, but States were divided into two groups- general and special category States.
• Average tax to GSDP ratio was higher for the former.
• Three-year per capita GSDP was computed separately in these two groups, weighted means of tax to GSDP ration obtained, and per capita tax revenue was assessed for each State.
• The fiscal distance was calculated on estimated per capita revenue with reference to the higher State, which was then multiplied by the 1971 populations to arrive at the share of each State.

11. The revision of the base year to 2011-12 by the Central Statistics Office from 2004-5 also created complications.

8.For example Arunachal Pradesh, saw a sudden spike in per capita GSDP.

9.Suggestion:

• The Terms of Reference of the 15th FC mention performance-based incentives based on improvements in GST collection, Direct Benefit Transfer rollout, etc.
• This would definitely infuse a spirit of competition.
• The challenge for the commission is to strike a balance between those who need and those who perform.