Reduced Financial transfers to states :
Reduced Financial Transfers to States:
– Despite recommendations from the Fourteenth and Fifteenth Finance Commissions to devolve 42% and 41% (excluding J&K and Ladakh) of Union tax revenues to States, the Union government has been reducing financial transfers.
– This reduction is accompanied by an increase in the Union government’s total revenue, leading to higher discretionary expenditure controlled by the Union.
Basic Math on Tax Revenue:
– Gross tax revenue of the Union government has more than doubled from ₹14.6 lakh crore in 2015-16 to ₹33.6 lakh crore in 2023-24.
– However, the share of States in the Union tax revenue has only doubled during this period, indicating a decline in the proportional distribution of revenue to States.
– Grants-in-aid to States have also decreased, further reducing the combined share of statutory financial transfers in the gross tax revenue of the Union government.
Centralisation of Public Expenditure:
– The Union government influences State priorities through Centrally Sponsored Schemes (CSS) and Central Sector Schemes (CSec Schemes), which compel States to commit their financial resources.
– Wealthier States can leverage Union finances through CSS, while less wealthy States increase their liabilities by borrowing to commit matching finances.
– CSec Schemes, fully funded by the Union government, allocate a larger share of finances, potentially benefiting specific States or constituencies
Scope for Anti-Federal Fiscal Policies:
– Financial transfers through CSS and CSec Schemes are non-statutory and tied grants, limiting States’ freedom in public expenditure.
– The Union government’s fiscal deficit and retained gross tax revenue grant it significant financial powers with limited expenditure responsibilities.
– There is a possibility of the Union government arguing for further reduction in States’ share in Union tax revenue, undermining cooperative federalism principles
What is the Finance Commission?
• The Finance Commission in India is a constitutional body established under Article 280 of the Indian Constitution.
• Its primary function is to recommend the distribution of financial resources between the central government and the state governments.
• The Fifteenth Finance Commission was constituted on 27th November, 2017. It made recommendations covering the period of six years commencing on 1st April, 2020 through its Interim and Final Reports.
• The recommendations of the Fifteenth Finance Commission are valid up to the financial year 2025-26.
Key Recommendations of 15th Finance Commission:
Share of States in Central Taxes: The Commission proposed maintaining the states’ share in central taxes at 41% for the 2021-26 period, a slight reduction from the 42% allocated during 2015-20 by the 14th Finance Commission.
This 1% adjustment aims to accommodate the newly formed union territories of Jammu and Kashmir and Ladakh from the central resources
Fiscal Deficit and Debt Levels: The Commission recommended that the Centre aims to limit its fiscal deficit to 4% of GDP by 2025-26.
For states, it advised specific fiscal deficit limits as a percentage of Gross State Domestic Product (GSDP) for different years within the 2021-26 period.
States not fully utilizing the sanctioned borrowing limits in the initial four years (2021-25) can access the remaining amount in subsequent years.
Defense and Internal Security Funding: The report suggests establishing a Modernisation Fund for Defence and Internal Security (MFDIS), non-lapsable and funded primarily through the Consolidated Fund of India and other sources.
Centrally Sponsored Schemes (CSS): Recommendations include setting a threshold for annual CSS allocations, third-party evaluations, transparent funding patterns, and
stable financial allocations to phase out redundant schemes.
With the ToRs now approved, the stage is set for the commission to embark on its mandate, contributing decisively to the financial architecture that underpins India’s federal structure
– Delimitation of constituencies for Lok Sabha and State Legislative Assemblies is scheduled based on the first Census after 2026.
– Postponements of the 2021 Census have led to discussions on the impending delimitation exercise.
– Delimitation involves fixing the number of seats and boundaries of territorial constituencies for legislative bodies, including reservation of seats for SCs and STs.
– Mandated by Article 82 and 170 of the Constitution, delimitation is performed by the Delimitation Commission established under an act of Parliament.
– Previous delimitation exercises occurred after the 1951, 1961, and 1971 Censuses.
– Seats in Lok Sabha and State Legislative Assemblies are adjusted based on population, with the freeze on seat allocation since the 1971 Census.
– The freeze aimed to incentivize population control measures but has led to uneven population growth across states
– Two options for delimitation are discussed: maintaining 543 seats or increasing to 848 seats, impacting representation across states.
– Southern and smaller states may be disadvantaged compared to northern states, potentially conflicting with federal principles.
– International practices like the U.S. House of Representatives and EU Parliament employ different methods for seat allocation.
– Cap Lok Sabha seats at 543 to maintain current representation, aligning with federal principles.
– Increase the number of MLAs in each state to reflect population changes, without altering the number of Rajya Sabha seats.
– Emphasize empowering local bodies like panchayats and municipalities to strengthen democracy at the grassroots level.
What is Delimitation?
• Delimitation means the act or process of fixing limits or boundaries of territorial constituencies in a country or a province having a legislative body.
• Delimitation for LS (Lok Sabha) and LA (Legislative Assembly) is different from that of Local bodies.
• The Delimitation Commission Act was enacted in 1952.
• The Delimitation Commission is appointed by the President of India and works in collaboration with the Election Commission of India (ECI).
• Delimitation Commissions have been set up four times — 1952, 1963, 1973 and 2002 under the Acts of 1952, 1962, 1972 and 2002.
• The first delimitation exercise was carried out by the President (with the help of the Election Commission) in 1950-51.
• The last delimitation exercise that changed the state-wise composition of the Lok Sabha was completed in 1976 and done on the basis of the 1971 census.
• The Constitution of India mandates that the allocation of seats in the Lok Sabha should be based on the population of each state so that the ratio of seats to population is as close as possible to being equal across all states. It is intended to ensure that each person’s vote carries roughly the same weight, regardless of which state they live in.
• However, this provision meant that states that took little intersst in population control could end up with a greater number of seats in Parliament.
• To avoid these consequences, the Constitution was amended 42nd Amendment Act of 1976 froze the allocation of seats in the Lok Sabha to the states and the division of each state into territorial constituencies till the year 2000 at the 1971 level.
• The 84th Amendment Act of 2001 empowered the government to undertake readjustment and rationalisation of territorial constituencies in the states on the basis of the population figures of 1991 census.
• The 87th Amendment Act of 2003 provided for the delimitation of constituencies on the basis of 2001 census and not 1991 census.
• However, this can be done without altering the number of seats allotted to each state in the Lok Sabha.
• To provide equal representation to equal segments of a population.
• Fair division of geographical areas so that one political party doesn’t have an advantage over others in an election.
• To follow the principle of “One Vote One Value”.
• Under Article 82, the Parliament enacts a Delimitation Act after every Census.
• Under Article 170, States also get divided into territorial constituencies as per Delimitation Act after every Census
What are the Concerns Related to Delimitation?
Disparity in representation between north and southern part of India in the Lok sabha due to population as a deciding factor.
The delimitation based solely on population disregards the progress made by the southern states in population control and may lead to disparities in the federal structure.
Despite having only 18% of the country’s population, the southern states contribute 35% to the country’s GDP.
The northern states, which did not prioritize population control, are expected to benefit in the delimitation process due to their higher population growth.
After the 15th Finance Commission used the 2011 Census as a basis for its recommendation, concerns were raised about southern states losing funding and representation in parliament.
Previously, the 1971 Census was used as the base for funding and tax devolution recommendations to states
Affecting the Reservations for SCs/ STs:
The scheduled delimitation and reallocation of seats may result in not only a loss of seats for southern states but also an increase in power for political parties with their base of support in the north.
This could potentially lead to a shift of power toward the north and away from the south.
The exercise will also affect the division of seats reserved for the Scheduled Castes and Scheduled Tribes (SC/ST) in each state (under Articles 330 and 332).
What is the Delimitation Commission?
The Commission is appointed by the President of India and works in collaboration with the Election Commission of India.
• Retired Supreme Court judge
• Chief Election Commissioner
• Respective State Election Commissioners
To determine the number and boundaries of constituencies to make the population of all constituencies nearly equal.
To identify seats reserved for Scheduled Castes and Scheduled Tribes, wherever their population is relatively large.
In case of a difference of opinion among members of the Commission, the opinion of the majority prevails.
The Delimitation Commission in India is a high-power body whose orders have the force of law and cannot be called in question before any court.
A Delimitation Commission should be set up to redraw constituency boundaries based on the 2031 Census. And a State Reorganisation Act should be enacted to split states into smaller ones based on the population recommendations made by the Delimitation Commission.
There has been significant population growth in India since the last delimitation exercise, emphasizing the need to address the resulting asymmetry in political representation.
Instead of relying solely on population as the criterion for delimitation, other factors such as development indicators, human development indices, and efforts in implementing family planning programs could be considered. This would provide a more comprehensive and equitable representation of states’ needs and achievements.
States that have effectively implemented family planning programs should be acknowledged and rewarded for their efforts. The guidelines for the devolution of funds should be reviewed to incorporate a more balanced approach.