For several years, the States of the Indian Union have relied heavily on the revenue accrued from sales tax to finance their infrastructure, economic and social development projects. Considered to be a ‘kamadhenu’ tax, unlike other taxes, it was an elastic source of revenue for States whose rates they could also tweak according to their requirements. Now that the Central government has introduced the GST with the objective of ensuring uniformity throughout the country, States have lost this elastic source of revenue. Income from other taxes is quite disproportionate. Though the Centre has promised to compensate States for losses suffered, the fact is that States are largely dependent on the Centre when it comes to development. This can be especially tough on those States which do not have an adequate resource base or the capacity to generate adequate revenue. Given that one of the greater responsibilities for States is in ensuring human development, in terms of education and health, the arguments put forth by Kerala Chief Minister Pinarayi Vijayan for a fair and just allocation of resources by the Finance Commission appear to be reasonable (Editorial page, “Heed the federal framework”, April 12). But will the Commission listen?
A. Michael Dhanaraj,
Coimbatore
Apprehensions about the terms of reference of the 15th Finance Commission, of fairness and equity in the distribution of public resources for development, are not unfounded. With the Centre doing away with plan and non-plan expenditure and States facing a double whammy (demonetisation and GST), it is imperative for the Finance Commission to facilitate diversity and follow a democratic path of development. The proposal of “measurable performance-based incentives” for States on the pretext of enhancing “fiscal discipline” is against the spirit of federalism. It can also jeopardise several initiatives of State governments by labelling them “populist”. It is time the BJP government negotiated with the Chief Ministers concerned to find a reasonable and mutually acceptable solution to their differences.
Shreyans Jain,
New Delhi
