State performance must be key factor: Telangana FM on FC allocations

The country has reached a stage where the negative indicators like poverty and illiteracy cannot be treated as the basic parameters for distribution of resources to the states, he said

Though Telangana stayed away from the finance ministers’ conclave held last week over the terms of references of the 15th Finance Commission in Thiruvananthapuram, the state finance minister Etela Rajender in an interview to B Dasarath Reddy delves on the state’s view on how the Centre should deal with the Finance Commission.

The Centre’s move to use 2011 population criteria for determining the share of taxes to individual states has been opposed by some of your counterparts in the south, including that of Andhra Pradesh. What is your view?

I have a different view. You cannot keep insisting on 1971 population (census) as a basis for calculating the share of states in divisible pool even today. There is no justification to oppose 2011 population criterion as such.

The issue that has to be addressed here is whether those states that have diligently followed Government of India’s population control policy in the interests of the nation can be penalised for their effort. It is the Centre’s responsibility to support the states that have shown the results, not just in population control but in other areas of development as well.

How do you expect the 15th Finance Commission to address these issues? 

The country has reached a stage where the negative indicators like poverty and illiteracy cannot be treated as the basic parameters for distribution of resources to the states. Instead, incentivise the performance of individual states in these and other areas.

The terms of references (ToR) of the 15th Finance Commission also includes determination of populist schemes being implemented in states. What is your stand?

Personally, I do feel that there has to be a limit to this mindless competition among states as far as the implementation of populist schemes is concerned.

However, there is a danger. The spirit of cooperative federalism could be undermined if the Centre sits in judgement and starts telling the states what to do, what not to do or what construes a populist scheme. That should remain the prerogative of democratically elected governments in the states.

Are states spending more than what they can afford and in turn contributing to a huge spurt in borrowings as the latest RBI data suggests?

I am aware that the ToR of 15th Finance Commission seeks to restrict the borrowings of the states to 20 per cent of GSDP as compared to the existing 25 per cent level. But look at the dichotomy here.

The Government of India’s borrowings is equivalent to 49.5 per cent of the country’s GDP. Then why restrict the states to a much lower level of borrowings under the FRBM?

The Telangana government undertook massive construction of projects and other programmes in the past four years even while facing severe constraints in resource mobilisation due to the FRBM limits. It is a legitimate effort aimed at fulfilling the aspirations of the Telangana people. The present borrowing limits need to be increased by at least another 5 per cent for the states.

The Centre says the devolutions being made under the 14th Finance Commission have put more resources at the disposal of the states. What else do the states want?

There is a strong apprehension that the Centre is trying to scale down the present 42 per cent share of states in divisible pool in some ways through the 15th Finance Commission. But we will ask the Finance Commission to raise the states’ share in divisible pool to 50 per cent, which is possible.

Also, the states should be given full freedom in utilising these resources. The Central transfers should not be tied to the Centrally Sponsored Schemes as each state will have different need gaps and it is up to them to make allocations for schemes that they find relevant. Take for instance, the state of Kerala where the literacy rate is 100 per cent. They may need resources and schemes to achieve other socioeconomic goals. Therefore, the states should have complete freedom to decide how and where to spend money as they are better placed to understand the needs and aspirations of the people.

Does this not mean undermining the role of the Centre in overall planning and development of the country?

Prime Minister Narendra Modi once said the country’s growth and development was dependent on how the states perform on economic and social parameters. If that is the case, the Centre should support and strengthen the hands of the states to achieve better performance and better results.

What has the Centre got to do with the welfare schemes, which are being implemented solely by the states? Instead of launching its own schemes, the Centre should focus on strengthening the institutions such as the Niti Aayog to achieve desired outcomes in social sector. Prime Minister Narendra Modi replaced the planning commission with Niti Aayog promising better outcomes. We expect the government to give due value to the recommendations of Niti Aayog.

Do you think the Centre has not been incentivising the performance of the states? 

Telangana is giving 24/7 power to people across the categories. The Centre has not rewarded us for that in any way. We have newly established 564 residential schools for boys and girls from weaker sections. We have got no incentive from the Centre. We have strengthened the health care sector much to the envy of private corporate hospitals. Institutional deliveries have gone up 30 per cent due to the government’s efforts. We have not received any special appreciation from the Centre.

We have been executing a massive piped water project (Mission Bhagiratha) for the entire households in the state. Except some parts of Gujarat, no such project of this scale has been implemented anywhere in India. Even the Niti Aayog had recommended the allocation of Rs 194 billion for this project. The project will have a huge impact on the general well-being of the population as waterborne diseases are the major cause of health problems in rural areas. But the Centre has not given any assistance.

Has the new state gained proportionately in terms of resource allocations under the 14th Finance Commission’s recommendations?

It is an irony. As a region Telangana got 2.96 per cent share in Central taxes in proportion to its 42 per cent share in population of the undivided Andhra Pradesh. When the 14th Finance Commission reworked the allocations after the bifurcation, Telangana’s share has come down to 2.44 per cent because of certain parameters. We have already suffered a loss and we do not want a repeat of that situation under the 15th Finance Commission.

It is not a matter of dispute between the south and the north and we are not willing to see the issue around the allocation of resources in that way. The Centre has to create a level playing field for states based on performance and also try and remove the scope for such apprehensions with a set of terms of references for the Finance Commission that can serve the interests of every state.