States should have been consulted before changing Finance Commission Terms of Reference, says Manmohan Singh

At a seminar organised by Kerala Government opposition leaders and economists term new ToRs as an attack on federalism

Former Prime Minister Manmohan Singh on Saturday termed as “unilateral” the Centre’s move to change the Terms of Reference of the 15th Finance Commission for creation of a non-lapsable fund for “Defence and Internal Security”.

At a day-long seminar on “Additional ToR of the 15th Finance Commission: Implications for the States” organised by Gulati Institute of Finance and Taxation, an autonomous institute of the Government of Kerala, the Centre’s move was questioned as part of the growing infringement of the states’ rights by a range of speakers including CPI(M) General Secretary Sitaram Yechury, Kerala Finance Minister T. M. Thomas Issac, Deputy Chief Minister of Delhi Manish Sisodia, former Union Minister Jairam Ramesh and scholars including economists Prabhat Patnaik, C. P. Chandrashekhar, Praveen Jha, Abhijit Sen, IIM Calcutta Professor Sushil Khanna, former Lok Sabha Secretary General PDT Achary among others.

The Centre had in July, this year, changed the Terms of Reference of the 15th Finance Commission and mandated the panel to suggest ways for allocation of non-lapsable funds for defence and internal security. The government on November 27, 2017 notified the 15th Finance Commission, headed by N K Singh, to suggest the formula for devolution of funds to states by the Centre for five years commencing April 1, 2020, among other issues.

“The best course would have been for the Central government that if it wants to tailor the Terms of Reference, it should be backed by Chief Ministers’ Conference, which is now under the auspices of NITI Aayog, otherwise there would be strong feeling that the (Central) government is trying to rob the states of due resource allotment. I think that it is not good for the federal polity of our country and cooperative federalism we all swear by these days,” said the former PM.

“The Commission’s report goes to the Finance Ministry and then it goes to the Cabinet and therefore government of the day can take a view that whatever the mandate of the Parliament, the government would abide by that rather than imposing its view unilaterally on the reluctant state commissions,” he added.

“I respectfully request to the authorities to still take this view that they will go by the advice of the Chief Ministers if there is new controversy with regard to additional terms of reference of the commission,” the senior Congress leader said.

“I am told once upon a time, the 9th Finance Commission took the view that it will be guided by the Constitutional mandate and will do the fair distribution of taxes, though I don’t know that whether this (15th) commission is going to adopt that line of thought. But…internal security as well as defence are subjects which are of great national importance,” Singh added.

According to the Kerala Finance Minister, the Centre is trying to reduce the states’ share in the name of defence.

“We have to locate this move in the larger context of what is happening in India. Federal principles are being attacked in a manner never attempted before. We view this as an attempt to drastically reduce the states’ share in the name of defence which is entirely within the purview of the Centre’s list,” said Thomas Issac.

Many speakers dwelt on the issue of division of the State of Jammu and Kashmir into two Union Territories, locating the new ToRs in the Finance Commission as part of a “not so benign” attempt to “assault” the federal structure.

Delhi Deputy Chief Minister Manish Sisodia said Delhi, which is a state, is not considered by the Finance Commission because it is labelled as a Union Territory whereas Jammu and Kashmir, which is now a Union Territory, is within the purview of the Finance Commission. According to Sushil Khanna of the IIM Calcutta, it was surprising that the states have not challenged the unilateral division of J&K into two Union Territories.

“I do not view this as a benign attempt to cut the states’ finances. This is part of a serious assault on the federal structure,” said Khanna.

Former Union Minister Jairam Ramesh termed the Centre’s attitude towards states as having changed from “cooperative federalism to competitive federalism and now coercive federalism”.