The Hindu : Kerala / Thiruvananthapuram News : Restore fiscal federalism, says State

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Tuesday, Feb 10, 2009
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Kerala - Thiruvananthapuram

Restore fiscal federalism, says State

Special Correspondent

Takes up concern over Centre-State resource-sharing with Finance Commission

— Photo: C. Ratheesh Kumar

FOR STATE’S CAUSE: Chief Minister V.S. Achuthanandan addressing a discussion between the State government and the 13th Finance Commission in Thiruvananthapuram on Monday.

THIRUVANANTHAPURAM: Kerala has urged the 13th Finance Commission to reverse the steady erosion of fiscal federalism in the country over the last 40 years or so.

Chief Minister V.S. Achuthanandan made this appeal while presenting the State’s case before the commission during discussions between the commission and the State government here on Monday.

He presented to the commission’s chairman Vijay Kelkar a detailed memorandum listing the State’s grievances about the manner in which resource-sharing was taking place from the Centre to the States and among the States. The commission, the independent statutory body responsible for equitable distribution of resources from the Centre to the States, is in Kerala as part of the process of deciding its award (for the next five-year Plan period).

Mr. Achuthanandan said the Centre had been, over the past four decades, increasingly bypassing the Finance Commission to transfer its resources to the States. Funds transferred through Centrally-sponsored schemes and direct releases to autonomous bodies were against the concept of fiscal federalism because of the discretionary and conditional nature of such modes of transfers. The States received 30.5 per cent of divisible pool of the Central tax revenue as per the award of the previous Finance Commission.

He urged the present Finance Commission to increase its award to 50 per cent from 2010-11.

This could be done by decreasing the transfers through other routes [where discretion and conditions come into play.]

The Chief Minister proposed a new devolution formula for transferring 65 per cent of the divisible pool of the Central tax revenue to the States (50 per cent through Finance Commission and the remaining 15 per cent through other routes such as various grants and Centrally-sponsored schemes). The total resource transfer in 2008-09, as per budget estimates, would come to 61.16 per cent of the divisible pool.

He said the previous Finance Commissions had tended to penalise Kerala for the progress it had made in the social sectors. The 10th Finance Commission had allocated 3.875 per cent of the total share of the Central resources transferred to the States. This came down to 3.057 per cent in the 11th Finance Commission’s award and 2.665 per cent in the 12th Finance Commission’s award. The criteria being followed for deciding relative share of the resources to each State was weighed heavily against Kerala, according to him.

The Finance Commission chairman, addressing the meeting, lauded Kerala’s achievements in the social spheres and said the challenge before the State was to ensure economic stability and growth over the medium term so as to generate sufficient resources to maintain these achievements.

“This will require growth acceleration. This will also require a fresh look at the public expenditure and close attention to enhancing of revenues,” he said, citing data pertaining to growth, public expenditure and revenue receipts in the recent years, showing Kerala in poor light.

He said there were role models such as the Kerala State Electricity Board in the State to show how public sector performance could be improved, but the State had been found consistently investing funds in non-working public sector undertakings. “It is vital for the State to improve fiscal space for public investment and the productivity of capital expenditure through public sector reform, including judicious disinvestment and fostering of public-private partnership,” Dr. Vijay Kelkar said.

He proposed a review of retirement age of government employees to control pension burden, lengthening the time frame of the current pay award, tightening hold on revenue deficit (which, at 2.55 per cent of the Gross State Domestic Product in 2007-08, was one of the highest among the general category States) and imposing user charges to recover at least the maintenance cost of services such as drinking water supply.

Addressing a press conference later, Finance Minister T.M. Thomas Isaac said some of the suggestions put forward by the Finance Commission were matters of political policy of the Left Democratic Front government.

The State’s memorandum to the Finance Commission this time covered several areas that had not been properly represented previously, adversely affecting the awards of the previous Finance Commissions, Dr. Isaac said.

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