Chief Minister Oommen Chandy will convey to the Centre Kerala’s objections to the Raghuram Rajan Committee report on evolving a composite development index of States, during his visit to New Delhi on Friday.
The Chief Minister, who left for New Delhi via Bangalore on Thursday, will call on ailing Defence Minister A.K. Antony, hold political discussions with the Congress high command, and meet Union Minister for Human Resource Development M.M. Pallam Raju, among others. His appointment with the Prime Minister Manmohan Singh has not been finalised.
Mr. Chandy has already written to the Prime Minister urging him not to accept the recommendations of the committee and leave the devolution of resources to the Finance Commission and the Planning Commission as at present. The government proposes to submit detailed comments on the report later.
Chandy’s letter
In his letter to the Prime Minister, the Chief Minister said that implementation of the report would be against the provisions of the Constitution, the concepts of fiscal federalism, and the existing scheme of devolution of developmental funds by the Planning Commission.
Mr. Chandy noted that the report itself mentioned that its recommendations might be used to allocate some of the developmental funds even while stating that the report was not intended to replace the existing methodologies for allocation of funds by the Centre to the States. But, there is no uncommitted corpus of funds with the Centre that can be allocated as recommended by the committee.
“The devolution of tax and grant-in-aid is determined by the Finance Commission in accordance with the provisions of the Constitution. For devolution of Plan funds, there are established methods developed over the last several decades by the Planning Commission after consultation with the States. The present committee has not held consultations with the States or other stakeholders and its report has been prepared over a short time of four months.”
Economic factors
He said the methodology adopted by the committee was seriously flawed as it did not include major economic factors such as agriculture production, production of manufactured goods or power generation in shaping the index. “It does not take into account factors such as demographic profile, the gender equation, productivity levels, and extent of investment, both domestic and private. This would be obvious from the fact that advanced States would be eligible for higher allocation of resources. Distribution of resources as recommended by the committee would only help to aggravate existing imbalances.”
Note of dissent
He said the note of dissent submitted by committee member Shaibal Gupta had brought out some very relevant issues. “We completely agree with the view expressed by Dr. Gupta that the choice of Monthly Per Capita Consumption Expenditure (MPCE) in place of per capita GSDP is out of place. MPCE does not reflect production and income derived from production. In States to which there is inflow of foreign and domestic remittances, as in Kerala, MPCE would give a distorted picture of level of development.
“As Dr. Gupta has pointed out, MPCE does not take into account the difference in prevailing level of inflation in different States. He has stated that there could be price differentials as high as 30 to 40 per cent among States. Dr. Gupta has also pointed out the fact that the committee has chosen a mix of parameters, some of which are based on outcome and some on ‘background or process variable’, while the original decision of the committee was to choose outcome-related variables.”
He continued that the report did not take into account the fiscal capacity of the States. A State that is heavily dependent on the services sector for its income is automatically disadvantaged in its capacity to collect revenue because it gets no share of service tax. “The report also does not take into account the mandate given under the Constitution relating to measures to augment the Consolidated Fund of the State to strengthen local bodies,” he added.
