Finance Commission fund allocation: NK Singh says discretion to play the key role

The 15th Finance Commission today sought to allay concerns of the Southern states on losing out on central funds due to their demographic gains, saying it'll use discretion in resource allocation even though the 2011 Census data would be a reference. The commission will look into both equity as well as efficiency while coming up with its recommendations for resource allocations, chairman NK Singh said. "What weighting will be assigned, what weighting will be chosen and what are the ingredients of those weighting is entirely the discretion of the commission. And this does not form a part of any binding features of terms of reference," Singh told a seminar at the BSE.

Remarks come amid displeasure shown by Southern leaders to the 15th FC's terms of reference having an explicit mention about using the 2011 Census data for arriving at resource allocation as against the 1971 Census. It can be noted that led by Kerala, the Southern states have been pioneers in population control and the resulting better human development indices, while the Northern states primarily the Hindu heartland have been the laggards. Noting that the past commission had also used the 2011 Census data but given it a lower weighting, Singh said the terms of reference does not bar it from using the data from past censuses.

He said population dynamics have always been a dominant part of the thinking based on which the recommendations are done by the panel. The terms of reference are set by the President based on the recommendations of the finance ministry and the commission has no role to play in forming them, he said but was quick to add that once it is finalised and approved the terms of reference are binding. Singh, the bureaucrat-turned-Rajya Sabha member, said the job of every commission is to harmonise between the seemingly contradictory goals of equity and efficiency, and asserted that the one headed by him will also make its recommendations.

"The feature of equity therefore has been a dominant feature and needs to be combined with features of efficiency. It's a challenge for every finance commission to harmonise the contradictions between efficiency and equity," he said. He said while equal levels of taxation entitles every citizen to receive equal quality of services from the state, it would be "mindless" for any commission to ignore it. Singh, who is now touring various states for consultations, expects to wrap up the visits by end of the year, so that they can submit the report before the October 2019 deadline. He said while Arunachal and Assam have already been covered, they will be visiting Haryana early next month, followed by Kerala in end-May.

There are other challenges as well before him, Singh said, pointing out to institutional changes like GST when things are still evolving, absence of the Planning Commission, no distinction between planned and non-planned expenditure and the future of Centrally-sponsored schemes which lies in a "grey" area.