Can't treat J&K on a par with states: 15th Finance Commission chairman

The 15th Finance Commission (FFC) did not take note of the provisions of Jammu and Kashmir Reorganisation Act, 2019, which require it to treat the Union Territory (UT) of Jammu and Kashmir (J&K) as a state for the purposes of transfer of net proceeds of taxes.

“We cannot take suo motu notice of pieces of legislation unless they constitute ToR (Terms of Reference) of the commission. We only act on ToR of the commission,” FFC Chairman N K Singh told Business Standard.

The Jammu and Kashmir Reorganisation Act, 2019 says that UT of J&K should get grants from the divisible pool. 

The Act requires the President “to make a reference to the commission to include the UT of J&K in its ToR, and make award for the successor UT of J&K.”

However, the Act simultaneously requires that the UT of Ladakh be treated on a par with the other UTs. 

The FFC in its report for fiscal year 2020-21, recommended a marginal reduction in the vertical devolution of the divisible pool to 41 per cent from 42 per cent.

This was on account of reorganisation of the erstwhile state of J&K into UTs of J&K and Ladakh, bringing the number of states in the country down to 28 from 29. 

UTs receive grants from the home ministry from the Centre’s share of funds.

“We notionally estimated that the share of erstwhile state of J&K would have come to around 0.85 per cent of the divisible pool. We believe there is a strong case to enhance this to 1 per cent to meet the security and other special needs of J&K and Ladakh,” said the commission’s report, submitted in Parliament earlier this month.

“Since this enhancement has to be met from the Union’s resources, we recommend that the aggregate share of states may be reduced by 1 percentage point to 41 per cent of the divisible pool,” the report said.

Singh wondered how could treating UT of J&K as eligible for divisible pool be referred to them as ToR. This is so because after an amendment in 2000, the Constitution clearly said only states can be the recipient of the net tax proceeds of the Centre.

Singh said the FFC had done its modelling for 28 states, as against 29 states taken into account by the 14th Finance Commission. 

“We have taken note that if J&K had remained a state, what would have been its devolution in the current formulae — 0.86 per cent. We have rounded it off to 1 per cent,” he said.

Not treating UTs with legislature on a par with states for transfer of net tax proceeds has always received flak from Delhi and Puducherry.

“We cannot consider demands of states that are outside the purview of our ToR. This is not something which is our preference, it is something on which the commission has little flexibility because we can only go by what the ToR say,” Singh had earlier told Business Standard.