Finance Commission may incentivise states for better population management (Lead)

Kolkata : The 15th Finance Commission's Chairman N. K. Singh on Monday said it may consider incentivising states which have made "good and rapid" progress in population management.

"One of the terms of reference for the Commission says that we shall use 2011 census if we choose to use population. There is a particular component in the terms of reference which says we may consider incentivising those states which have achieved good and rapid progress on replacement rates on demographic management," he said addressing a programme of the Indian Chamber of Commerce.

Responding to a query about opposition by some states for shifting of population base from 1971 to 2011 in the terms of reference, he said the Commission has to abide by the terms of reference given to it by the President.

"We have to abide by the terms of reference that the President gives us," he said.

He said population has been used as an important variable right from 1952 in the decision of horizontal distribution, i.e. how much money should go to the states and which state should get how much of the kitty. However, weights given to population have been varied.

"The balance between the efficiency and equity is the central piece on which the work of this Finance Commission must be judged... the endeavour of the Commission is to ensure that appropriate balance and fair judgement is reached between rewarding performance and recognising the need for equity," he said.

Singh said the Commission, which came into effect from November 2017, is expected to submit its report by end 2019.

The Commission has been visiting West Bengal from Monday to Wednesday and is supposed to have discussions with state government officials and Chief Minister Mamata Banerjee.

Earlier in the day, its members met leaders of various political parties at state Secretariat Nabanna here and Singh said all "pleaded for a higher devolution of taxes and sought special attention for the debt stressed states".

According to terms of reference of this Commission, it was asked for the first time to lay down the framework and terms and conditions for the use of Article 293 (3) of the Constitution, he said.

In fact, the central government has decided to simplify the consent mechanism for Open Market Borrowings (OMBs) under Article 293 (3) in order to bring in transparency and predictability in their use by the states.

Till now, the states were required to obtain quarterly consent from the Central Government for raising OMBs within the Net Borrowing Ceiling fixed for each of the states as per the formula prescribed by the Fourteenth Finance Commission, and now the Commission has been asked to "lay down conditions under which the central government should consider according permission or denying permission, one way or the other under Article 293 (3)".

Singh contended that popularly elected governments undertake decisions resulting in fiscal profligacy, excessive market borrowing leaving behind an excessive pile of debt to successor governments which would suffer under the impact of the decisions taken earlier.