The Finance Commission must be lauded for including forest cover in the mix for allocation of tax resources. States must respect this and do their bit in conserving it
One of the keys to improving Centre-State relations and ensuring development is even-handed and judicious distribution of tax revenue and other forms of earning between the federal and State Governments. The Finance Commission of India is a unique constitutional body that is periodically set up under Article 280 of the Constitution to define financial relations between the Central and State Governments. It lays down a set of principles that determines the method and formula for the distribution of tax proceeds between both Governments.A majority of the taxes such as Customs duty, income tax, service tax and Central excise are collected by the Centre. States were given the mandate to provide economic and social services to the people. They are empowered to levy income tax on agricultural earnings, professional tax, value added tax (VAT), State excise duty, land revenue and stamp duty. Hence, the Finance Commission was created to address issues of vertical and horizontal imbalances of federal finances in India.
The 15th Finance Commission, which was established to decide on the devolution of taxes and other receipts to the Centre and States for the next five years beginning April 2020, submitted its recommendations before the Central Government last December. The Commission used the population data of 2011 while making its recommendations and for the first time, in addition to income distance, population and area and forest cover, it used two additional factors — demographic performance and tax effort — to determine the tax pool of States.
The Commisson’s usage of the 2011 population figures gave rise to considerable controversies. While the 14th Finance Commission had taken the 1971 census as the base with a weightage of 17.5 per cent and assigned a weightage of 10 per cent to the 2011 population figures, the present one has kept the weightage of 2011 population at 15 per cent and has given additional 12.5 per cent to demographic performance. The use of 2011 data has benefitted some States like Uttar Pradesh and Bihar while others have been disadvantaged.Most States in southern India, except Tamil Nadu, feel that they are suffering because of their policy of population control. They believe they will get a smaller share of the pie if the population dispensation is applied. However, according to the Economic Survey, 2016, inter-State labour mobility averaged 5-6.5 million people between 2001 and 2011, yielding an inter-State migrant population of about 60 million and an inter-district migration as high as 80 million. Apart from the southern States, Assam, Goa, Himachal Pradesh, Odisha, Punjab and West Bengal, too, saw a dip in population compared to the 1971 census. The 15th Finance Commission was critical of the Union and State Governments’ tendency to finance spending through off-budget borrowings, too. On this front, it called upon both to phase out off-budget liabilities.
Irrespective of the surrounding controversies, the Commission made it clear that it wants to play a key role in fostering sustainable development. It must be noted that the 14th Commission had accepted it as a criterion to determine the share of taxes to various States. This is why “forest cover” was assigned 7.5 per cent weightage. The 15th Finance Commission sought to raise the area cover to 10 per cent in order to reward States that have “provided ecological services” to the country.
However, it is distressing that none of the States has been liberal in granting funds to the forest department commensurate to the contribution the forests have made in getting funds. The enhancement of funds to States — from 7.5 per cent to 10 per cent — if implemented, can go a long way in protecting the country’s ecological frontiers. This can also lead to the economic well-being of the people and the country and help consolidate forest resources as well.
