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AP penalised for higher growth

AP penalised for higher growth
Highlights

“Instead of being rewarded, Andhra Pradesh is being penalised for significantly improving per capita income level above the national average by executing central plan policies in a comprehensive way. We feel that the issue of income inequalities needs to be addressed through targeted schemes rather than Finance Commission transfers,” said Chief Minister N Kiran Kumar Reddy.

  • Rise in per capita income leads to less Central funds
  • CM urges 14th Finance Commission to correct anomaly

  • Per capita income above national figure only in four districts of State
  • CM expresses concern that the State may lose Rs 20,000 cr during 2015-20
  • Tax devolution drops to 6.94% during 13th Commission from 7.91% during 10th panel term
  • CM urges that Finance Commission consider area and population as criteria
  • State seeks Rs 30,425 cr under grants-in-aid

Hyderabad: “Instead of being rewarded, Andhra Pradesh is being penalised for significantly improving per capita income level above the national average by executing central plan policies in a comprehensive way. We feel that the issue of income inequalities needs to be addressed through targeted schemes rather than Finance Commission transfers,” said Chief Minister N Kiran Kumar Reddy.

Addressing the Fourteenth Finance Commission (FFC) meeting with the State government officials at Jubilee Hall here on Thursday, Kiran Kumar Reddy said that the per capita income may not be a suitable criteria for tax devolution because of high concentration income in four districts. He said that the average per capita income of remaining 19 districts would be below the national average and the Commission should ensure that the high income in four districts should not result in lower transfers to the majority of the population in the State.

Saying that it is a matter of grave concern to AP that its share in tax devolution has been coming down with each Finance Commission, he said that the tax devolution came down to 6.94 per cent in during the period of the 13th Finance Commission from 7.91 per cent during the 10th Finance Commission period.

“Andhra Pradesh would lose Rs 20,000 crore during the 14th Finance Commission period from 2015 to 2020 if the divisible pool for the period is conservatively estimated and the reduction amount is nearly 40 per cent of present State Plan Size,” he expressed concerned and urged the 14th Finance Commission to ensure that at least 40 per cent of the divisible pool of Central taxes is devolved to the states.
Noting that area and population of a state represent the financial needs better than other indicators, Reddy suggested that the area and the 1971 population census may be assigned weights of 30 and 20 per cent respectively. He said that the FFC may like to continue using the 1971 population as a horizontal devolution for four reasons – such as the wording of the Terms of Reference – but it does not provide sufficient leeway to the FFC to significantly depart from the procedure followed by previous commissions. The use of 1971 population data in determining horizontal devolution has its roots in 1977, it has not been firmly accepted as a parameter in three dimensions and predictability is one important element of resource flows across inter-governmental units.
Kiran wanted the Finance Commission to take into account inequality in adjusted human development index (IHDI), which is more relevant criterion for horizontal distribution. “We accept the proposition that vertical imbalances are common in most federations, being a necessary consequence of the system of assignment based on comparative advantage.
“Our major concern is that there has been an accentuation of vertical imbalances far beyond those envisaged in the Constitution,” the Chief Minister said. He proposed that “instead of speaking in terms of re-distribution of resources between the Centre and the States, there is an imperative to re-align resources in favour of the States.” He also wanted amendments in the Fiscal Responsibility and Budgetary Management Act to ensure “quality of fiscal consolidation” by states.
Referring to the sharing of resources, he said that the ultimate test of successful sharing of resources between the States and the Centre is the final outcome as measured by the improved welfare of the people, and the distribution of funds has to be conceived in dynamic terms and not in static terms. “We feel that there is an imperative to realign resources in favour of States,” he said, adding that there has been an unnecessary stability in the shares of the Centre and the States in their combined revenue and expenditure and “we hope the FFC will make a beginning in rectifying this imbalance”.
On the FRBM Act, he said that FFC has to examine the quality of fiscal consolidation while considering possible amendments to FRBM Act. He said that the grants recommended by previous commissions to local bodies are very inadequate and FFC has to make recommendations based on assessment of the gaps in their resources. “This will ensure quicker transition to a truly decentralized system of local self governance in the true spirit of 73rd and 74th Amendments to the Constitution,” he said.
Saying that the AP has the third largest drought-prone area in the country, he said that the Finance Commission has to review the modalities in releasing funds under National Disaster Relief Fund.
Chief Minister named several schemes being implemented in the State for the welfare of the people. Fourteenth Finance Commission chairman Dr Y V Reddy and Commission members Prof Abhijit Sen, Sushma Nath, Dr Govinda Rao and Sudipto Mundle and other officials took part in the discussions on the occasion.

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