Terms of Reference of 15th Finance Commission seriously flawed: Chidambaram

Senior Congress leader P Chidambaram today said the terms of reference of the 15th Finance Commission were "seriously flawed" and would adversely affect the better-performing states.

His remarks came on a day the finance ministers of the southern states were meeting in Thiruvananthapuram to discuss the concerns and views on the terms of reference of the 15th Finance Commission.

"Meeting of FMs of Southern States today. Terms of Reference of XV Finance Commission seriously flawed," the former Union finance minister tweeted.

Kerala Finance Minister T M Thomas Isaac has said the changes in the terms of reference of the 15th Finance Commission would adversely affect the southern states and the conference was to highlight the issue and make it a national agenda for debate.

Earlier, Chidambaram had said the central government has "lit a fire" and it should be doused before the southern "flames scorch the federation".

Better-governed and better-performing states have already lost crucial fractions in their shares, he had said.

The former finance and home minister had pointed out the Finance Commission shall use population data from the 2011 Census and not the 1971 Census that was used hitherto.

"Structurally, the Constitution gives more powers of taxation to the Centre and more responsibilities of expenditure to the states. Hitherto, the population data was taken from the 1971 Census. The freeze' was agreed upon to protect the states that had done well in stabilising their population," he said.

Chidambaram said the 14th Finance Commission made a small shift -- it reduced the weightage to the 1971 Census data from 25 to 17.5 per cent and introduced a weightage of 10 per cent to the 2011 Census data.

He said directing the 15th Finance Commission to discard the 1971 Census data and take into account only the 2011 Census data, is a clear punishment for states that had performed splendidly between 1971 and 2011 in stabilising their population.

"The argument that poorer states with less fiscal capacity, less revenues, historical disadvantages and poorer development outcomes deserve more support is a sound argument," he had said.

"The southern states have lost 6.338 per cent (in their share in taxes) on account of better governance and better outcomes, but they were at least protected against the consequences of a fall in their share of India's population," Chidambaram had tweeted.

"According to the 1971 Census, the southern states' population was 24.7 per cent of the total population; according to the 2011 Census data it had fallen to 20.7 per cent. The central government has lit a fire. It should be doused before the southern flames scorch the federation," he said.

Chidambaram said the 15th Finance Commission has been asked to consider certain performance-based incentives.

"Its foremost duty is to make recommendations to the President as to the distribution between the Union and the states of the net proceeds of taxes which are to be...divided between them...and the allocation between the states of the respective shares of such proceeds, he said.

The Constitution obliges the the central government to appoint in every five years a Finance Commission.