1. Prologue
  2. P1: Finance Commission (FC)
    1. Fourteenth Finance commission & fifty percent Tax sharing
    2. Why do states want 50% share?
  3. P2: Delimitation in Telangana and Andhra Pradesh
  4. Mock Questions

Prologue

Following topics combined Together

  1. Frontline July 2014 articles: demands of states to increase sharing in central taxes
  2. Sep 2014, Week2: Telangana wants 50% share from Central taxes
  3. Sep 2014, Week2: Delimitation exercise in Telangana and Andhra Pradesh

Finance Commission (FC)

13th FC 14th FC
Chairman Vijay Kelkar Chairman YV Reddy
Recommendations Effective for 2010-15 2015-20 (i.e. from 1st April 2015)
Gave states 32% share in Central taxes Yet to give report, but some states want 50%. Hence topic in news.

Basic Structure functions- read from Laxmikanth chapter 41.

  • FC has 4 people
  • FC looks into 4 tasks
    1. Distribution of taxes
    2. Grant in aid principles
    3. Augment state Consolidate fund, to help local governance bodies
    4. Any other matters referred by President.

Function no.1 to 3 are cliched,hence UPSC examiner usually ask 4th function (that 14th FC will look into which of the given subjects? A|B|C|D.

14th FC will look of following subjects,Ā referredĀ by President:

  1. Pricing of public utilities (electricity, water) in independent manner?
  2. Review fiscal deficit and subsidies of both Union and states. How to reduce them?
  3. Disinvestment
  4. GST- how to implement?
  5. Telangana Andhra Pradesh- resource distribution
  6. funds for disaster Management, Climate change, sustainable Development

Fourteenth Finance commission & fifty percent Tax sharing

14th Finance commission YV Reddy

13th Finance Commission had given 32% share in Central tax to States. As expected, states want more share from 14th Commission.

Demands to 14th Finance commission (2015-2020)
Most states
  • 50% from central taxes e.g. Madhya Pradesh, Telangana
  • Union should also share cash earned in telecom spectrum auction, cess and surcharges.
Erstwhile- United Andhra
  • 39% (and not 50%) Because at that time, Congi Government @both union and state.
  • Hence they did not want to create more burden on union. That way, union would left with more money to launch schemes named after ‘you know who’.
Telangana
  • 50% from central taxes.
  • Finance commission is deciding allotment based on 1971 census data. We want’em to use Census 2011 data.

Note: 50% doesn’t mean Telangana individually wants 50% of the whole Union taxes. Theyā€™re demanding 50% vertical distribution.

Vertical distribution
  • Out of Central taxes, TOTAL 50% money be allotted to all states.
  • But FC will decide
Horizontal distribution
  • From those 50%, which state will get how much money?
  • Finance commission will decide that as well.

Why do states want 50% share?

32% share not enough to meet non-plan expenditure of the states. Example

  1. staff salary and pension to teachers, doctors, police
  2. Public roads and buildings maintenance
  3. Irrigation and flood control etc.
  • Adding insult to the injury, Union wants the States to bring down Effective revenue deficit to 0% under the FRBM act.
  • Therefore, most states are forced to reduce statePSC recruitment. Many jobs are outsourced, staff hired on non-permanent basisĀ  or ‘fixed salaries’, leading to more court litigations and protests. (e.g. teachers recruitment in Gujarat, Kashmir, Bihar, everywhere.)
  • During high GDP growth years, union’s tax collection increased, yet they’re not giving out more money in non-plan grants.
  • Over the years, centrally sponsored schemes (CSS) have increased. And percentage wise, states are required to share more and more burden e.g. Sarva shiksha Abhiyan, states share increased from 15% to 40%
  • Under 7th Schedule, States are given subjects which don’t fetch truckload of revenue. (compared to Union subjects such as IT, Customs, Excise)

Some reforms in Central schemes

  • All the money will be directly given to states (and not toĀ  DRDA and jholaachhap NGOs)
  • States some flexibility in implementing CSS according to their needs.

For More on that, refer to economic survey ch13 summaries.

P2: Delimitation in Telangana and Andhra Pradesh

What is Delimitation?

  • Article 82: After every Census, Parliament enacts a Delimitation commission, and Union Government appoints that commission.
  • This Commission demarcates the ‘boundaries’ of territorial Constituencies.
  • Main consequence is: the SC/ST Constituencies get altered.
  • For example Ram Vilas Paswan used to contest from Hajipur LokSabha seat (reserved for SC), but after 2002’s delimitation exercise, it got ‘de-reserved’. While in some other area, the un-reserved Constituency area may get split or merged with another reserve Constituency.

Q.Does it change total no. of LokSabha and Rajya Sabha seats?

Ans. No. Because as per a Constitution amendment, total no. of Lok Sabha seats and Vidhan Sabha seats will remain fixed as per 1971 Census. [Till the census after 2026].

Q.Who areĀ  exempted from this exercise?

Ans. J&K and Union territories.

Q. Composition of Delimitation commission?

  • The last Delimitation commission was setup in 2002
  • Chairman- retired CJI
  • CEC and State Election commissioners as Ex-officio members.
  • For the given state, Delimitation commission takes help from total 10 “associate” members. But they’ve no voting rights in the meeting:
5 MP from given state, nominated by LokSabha speaker
5 MLA from given state, nominated by Vidhan Sabha speaker.

Delimitation Commission’s orders cannot be questioned in any court. (pretty awesome huh!)

But these order get implemented from the date which president decides.

Its report is put on the table of LokSabha and Vidhan Sabha- but they cannot make any modifications in it.

Why delimitation in Andhra Pradesh and Telangana?

As per Andhra Pradesh State reorganization act 2014.

Vidhan Sabha seats Lok Sabha Seats
Andhra Pradesh 225 25
Telangana 153 17
  • But to implement this, someone needs to draw boundaries of those Constituencies and decide which of them will be reserved for SC/ST.
  • Therefore, Reorganization act mandates EC to setup a delimitation Committee.
  • Jan 2015: EC and Delimitation commission will become active in this work.
  • 2019 elections will be done according to its verdict.
  • Experts believe No. of SC MLA Constituencies will increase in both states assemblies (Because of new Census 2011 data).
  • BUT No change in the number of SC and ST Lok Sabha seats in both the States. (Because itā€™s fixed till 2026)
  • Anyways, right now EC too busy with state assembly elections at Haryana and Maharashtra (October), and later at J&K & Jharkhand (December). Hence this project is not in their high-priority list.

Mock Questions

CSAT Prelim: usually one MCQ with multiple statements about structure function of these bodies then you’re asked to find correct/incorrect e.g. only 1 and 2 right, only 1, 2 and 3 right.

(Mains- GS2) Answer following in 100 words each

  1. How are electoral constituencies delimited for Parliamentary elections in India? (1996 Mains)
  2. Describe the methods of delimiting constituencies for parliamentary elections in India. (2003 Mains)

(Mains- GS2) Answer following in 200 words each

  1. Certain states have requested Finance commission to provide 50% allotment from Union taxes. Discuss the rationale behind their demand.
  2. What do you know about 14th Finance Commission? (they asked identical question in Mains 2000, for 11th FC)
  3. What is a Finance Commission? Discuss the main functions of the State Finance Commission. (2004 Mains)
  4. Distinguish between the status, organization and specific roles of the Planning Commission and the Finance Commission in India.(Main 1989)