AP pitches for rewarding states with better finance management

Hyderabad, The Andhra Pradesh government today put forth a number of suggestions before the 14th Finance Commission for rewarding states based on fiscal management and enhancing devolution of Central taxes by according weight to different parameters.

It also wanted amendments in the Fiscal Responsibility and Budgetary Management Act to ensure quality of fiscal consolidation by states. Expressing serious concern over the declining state share in devolution of Central taxes, Chief Minister N Kiran Kumar Reddy urged the 14th Finance Commission to ensure that at least 40 per cent of the divisible pool of Central taxes were devolved to the states. Delivering the keynote address at a meeting of the 14th Finance Commission members here today, the Chief Minister also suggested that grants equivalent to at least four per cent of the Central taxes be recommended for the local bodies while the Central share in disaster relief fund be enhanced to 90 per cent from the present 75 per cent. It is a matter of grave concern to Andhra Pradesh that its share in tax devolution has been coming down with each Finance Commission. From 7.91 per cent in the Tenth Commission, it came down to 6.94 per cent in the 13th Commission. We are distressed that instead of being rewarded, we are being penalised for significantly improving our per capita income level, the Chief Minister said. Noting that area and population of a state represented the fiscal needs better than other indicators, Reddy suggested that area and 1971 population may be assigned weights of 30 and 20 per cent respectively. 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.Noting that the recently developed inequality-adjusted Human Development Index (IHDI) was a more relevant criterion for horizontal distribution of resources, the Chief Minister requested that it be assigned a 20 per cent weight in the devolution formula.  There is a need to incentivise states managing their finances better. Among the efficiency parameters, we suggest that tax effort may be assigned a weight of 20 per cent and fiscal discipline 10 per cent, he added. The AP Chief Minister wanted the 14th Finance Commission to continue using the 1971 population as a criterion for horizontal devolution saying adoption of 2011 Census figures might bring in unnecessary and undesirable volatility in Central devolutions to the state. Referring to the Fiscal Responsibility and Budgetary Management Act, Kiran Kumar observed that the states have been observing fiscal rules scrupulously not because we have a comfortable financial situation but because we are constrained to do so. In the current dispensation, there is no focus on the quality of fiscal adjustment. We request the 14th Finance Commission to examine the quality of fiscal consolidation while examining possible amendments to the FRBM Act, he added. Stating that Andhra Pradesh was facing a number of special problems which could not be exclusively addressed through its budgetary provisions, the Chief Minister sought the Commission's support to take forward our first-of-its-kind initiatives for uplift of SCs and STs and protection of girl child. He also wanted the Centre to implement the Goods and Services Tax regime early as it would result in comprehensive reform in the system of indirect taxation in the country.  A mechanism should be put in place to adequately compensate states that were likely to suffer revenue loss in the initial years of introduction of GST, he added. Fourteenth Finance Commission Chairman Y Venugopala Reddy, AP Finance Minister Anam Ramanarayana Reddy, Revenue Minister N Raghuveera Reddy, Chief Secretary Prasanna Kumar Mohanty, were among those who attended the meeting.