Kerala

Finance panel award will worsen imbalance: Isaac

Special Correspondent

`No serious debate on fiscal devolution; Government keeps silence '

Balancing act: Planning Board vice-chairman C. V. Padmarajan releasing the `District Development Index 2004' prepared by the Institute for Monitoring Economic Growth in Thiruvananthapuram on Tuesday by handing over a copy to the former Planning Board member T.M. Thomas Isaac. Photo: S. Gopakumar

THIRUVANANTHPAURAM: The former Planning Board member T. M. Thomas Isaac has said that the 12th Finance Commission awards would only serve to aggravate vertical and horizontal imbalances in the Centre-State fiscal relations.

Delivering the keynote address at a seminar on `Devolution of Funds: Exploratory Study on Inter-District Disparity' organised by the Institute for Monitoring Economic Growth (IMEG) here today, Dr. Isaac pointed out that no serious discussion had so far taken place on the fiscal devolution package announced by the 12th Finance Commission and the way it would perpetuate the existing vertical imbalance in the fiscal relations between the Centre and the States. Unfortunately, the State Government was maintaining silence on the subject. Its focus was more on horizontal imbalances and how the devolved funds were being divided among States, he said.

Dr. Isaac said the question why the State's special problems and its achievements in the sphere of decentralisation did not get the attention it deserved from the Finance Commission needed to be looked into.

When the 11th Finance Commission adopted a stand that was hostile to the States, Kerala was in the forefront of rallying various States against the Finance Commission award and raising the issue at the national level. Tragically, however, no similar interaction with the other States have taken place after the 12th Finance Commission award became known, he said.

Wrong policies

Pointing out that the fiscal position of the States was robust at the beginning of the 1990s, Dr. Isaac said the situation became unfavourable to the States later only because of the policies followed by the Centre. The Centre's finances improved at the expense of the States' fiscal security. The situation became all the more serious for the States with increase in their revenue expenditure and fall in revenue.

The States would be in a deeper crisis with the Centre pursuing a policy of slashing commodity taxes and increasing service taxes and taking these taxes out of the ambit of Finance Commission awards, he pointed out.

Unique case

The former Planning Board member said Kerala was a unique case among States because it had the highest fiscal autonomy. The State Government was transferring as much as 15 per cent of its revenue to the local bodies as against just 2 per cent being transferred by the other States. The devolution of funds from the State Government to the local bodies was non-discriminatory and in the form of untied grants.

The capability of the local bodies to raise their own resources was also being taken into account while deciding the devolution package. However, the question is whether this has resulted in a fall in the local bodies' capability to raise own resources. This was a major academic question that needed to be addressed.

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