Finance Commission Holds Consultations with CM

Dr. Y V Reddy

Hyderabad, Sept 12 (INN): The Fourteenth Finance Commission consisting of Dr. Y V Reddy, Chairman and members, Prof. Abhijit Sen, Sushama Nath, Dr. M. Govinda Rao and Dr. Sudipto Mundle and Secretary AN Jha on Thursday held consultations with Chief Minister N Kiran Kumar Reddy, his cabinet colleagues and others as a part of its two-day visit to the State.

The Chief Minister in his key note address brought to the notice of the Commission higher than national average growth rates achieved in the State during the 10th and 11th Plan. The State is expected to achieve an annual average growth of 8.3 percent in the Twelfth Plan (2012-17). The impact of global downturn coupled with domestic supply constraints cast its shadow on the growth momentum. The average growth of the economy witnessed a steep fall from 9.9 percent in the period 2005-09 to 6.8 percent in the subsequent period. Growth in 2012-13 slipped to 5.3 percent.

Kiran Kumar Reddy emphasized that regaining the growth momentum and inclusive growth are the top priorities of his government. He felt that growth has no meaning and even no legitimacy, if those at the bottom are left behind. The recent initiatives are guided by these two compelling imperatives. He sought a helping hand from the Commission to carry forward this mammoth task. He sought realignment of resources in favour of Sates as most sectors touching on the lives of the people are in States’ domain.

The Chief Minister then brought to the notice of the Commission the recent initiatives of his Government in furtherance of the cause of more inclusive growth. The first of its kind initiatives are the enactment of SC Sub Plan and Tribal Sub Plan Act and the AP Bangaru Talli Girl Child Protection and Employment Act. He empadised that his government is in the forefront of women empowerment by extending interest free loans and launching schemes like Sthree Nidhi, Indiramma Amma Hastam. He also highlighted steps taken by the government to empower the youth by launching Yuva Kiranalu, Rajiv Udyog Jatara and provision of scholarship and fee reimbursement to students.. Other initiatives highlighted by him include supply of rice at Re. 1 per kg, Amma Hastam and outreach programmes like Rachhabanda and Indiramma Bata.He has also highlighted the lead taken by he State in promoting PPP projects and conducting the Partnership Summit in 2012.

Vertical Distribution of Resources between the Centre and States

The Chief Minister brought to the notice of the Commission the growing vertical imbalances in Indian fiscal federalism far beyond those envisaged in the Constitution. Such accentuation has taken place with the increase in the centre’s spending on state subjects, reduction in the share of state plan outlays, levy of cesses and surcharges by the centre, increasing number of Centrally Sponsored Schemes, etc. The entitlement based legislation such as Right to Education and National Food Security Ordinance and other central legislations in the area of environmental protection have considerably increased the expenditure responsibilities of States. He therefore sought that the States’ share in central taxes be increased from the present 32per cent to 40per cent.

Tax Devolution

Kiran Kumar Reddy expressed deep concern over the falling share of the State in tax devolution because of the emphasis placed by the Finance Commissions on equity parameters to the detriment of performing states like Andhra Pradesh. He drew the attention of the Commission that the State lost out in tax devolution from the Centre because of its higher percapita income. He suggested that 1971 population should be used as mandated in the terms of reference to incentive states which have moderated their population growth. He suggested that 1971 population and area should be assigned weights of 30per cent and 20per cent, respectively. As Income Adjusted Human Development Index is a comprehensive measure of the overall status of a state in terms of education, health and standard of living, he suggested that it be assigned a weight of 20per cent. He strongly opposed the use of percapita income as a criterion for tax devolution because of growing income inequalities and concentration of income in a few districts. Because of higher income in a few districts, majority of population should not be deprived the benefit of central transfers. For incentivizing the state to manage their finances prudently, he suggested that tax effort and fiscal efficiency may be assigned weights of 20per cent and 10per cent, respectively.

Fiscal Responsibility Legislations

On the issues of adherence to fiscal responsibility legislations, the Chief Minister stated that states have been observing fiscal rules scrupulously. He suggested that the process of fiscal consolidation can be taken forward if both the centre and the states follow fiscal rules. He suggested that states should be incentivized based on the quality of fiscal adjustment and adherence to fiscal rules.

Pricing of Public Utilities

The Chief Minister strongly opposed insulating the pricing of public utilities like drinking water, irrigation, power and public transport from policy fluctuations through statutory provision as it will deprive the poor access to public utilities.


On the issue of determination of the level of subsidies and their equitable distribution between the centre and the states, the Chief Minister has observed that the needs of people vary across states and within a state. State is a better judge to assess the needs of people and their provision. Nearly three-fourths of merit subsidies are being provided by states. There is a strong case for centre sharing the burden of merit subsidies as the centre’s provision is mostly on non-merit subsidies.

Debt Relief

The Chief Minister has highlighted that the burden of states in servicing their debt has increased considerably with the termination central loans, short duration of market loans, bunching if repayments of market loans beginning 2017-18 and the unprecedented fall in the external value of the Rupee.

Calamity Relief

Kiran Kumar Reddy sought determination of the size of the State Disaster Response Fund (SDRF) based on states’ proneness to disasters and past expenditure instead of past expenditure alone. He suggested that contribution to the Fund should be shared by the Centre and States in the proportion of 90:10 instead of 75:25. He suggested upward revision of norms of assistance to the affected. He strongly opposed the adjustment of opening balance in the SDRF before releasing money from the National Disaster Response Fund. The State was denied Rs. 1145 crore because of such adjustment.

Grants to Local Bodies

The Chief Minister sought provision of grants equivalent to 4per cent of the divisible pool of central taxes to local bodies to ensure quicker succession to a truly decentralized system of local self governance in the true spirit of 73rd and 74th amendments to the Constitution.

Goods and Services Tax

As GST would result in comprehensive reform in the system of indirect taxation in the country, CM urged its early implementation. He sought flexibility in deciding the rates of GST within a floor and a band. He also sought adequate compensation to states likely to suffer revenue loss in the initial years of migration to GST.

Grants for Special Problems

The Chief Minister has stated that the State has identified certain critical gaps in a few sectors where provision of additional resources will enable optimum utilization of existing investments and where service levels are highly inadequate in relation to needs. He sought adequate grants from the Finance Commission.

Concluding Remarks

Kiran Kumar Reddy concluded his address by observing that when the emphasis is on social justice, there is no escape from realignment resources in favour of states. He expressed the hope that the Fourteenth Finance Commission under the able leadership of Dr. Y V Reddy will usher in a new era of need based fiscal federalism in the country.

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