On May 17, finance ministers of five non-BJP states met President Ram Nath Kovind to discuss the terms of reference for the Fifteenth Finance Commission (FC-XV). They submitted a memorandum suggesting several amendments to the terms provided to the commission by the president earlier this year.
The finance commission is a constitutional body set up by the president every five years to determine the share of each state in central taxes. A large portion of this pool of funds is set aside for the use of the Central government, and the rest is distributed to the states.
The meeting with the president was a culmination of weeks of deliberations between the finance ministers of non-Bharatiya Janata Party (BJP) states since April. Initially, the debate was dominated by the fact that the use of the 2011 Census instead of the 1971 Census puts southern states at a serious disadvantage. But many other concerns have come up through these deliberations. The last point on the list of suggested amendments submitted to the president was specifically about Puducherry and Delhi, both of which are Union territories (UTs) with legislature.
It was suggested that a “suitable amendment be made in the TOR (terms of reference) to ensure that the award of Fifteenth Finance Commission must apply to UTs with legislature also.”
In the past, the terms have specified that the commission should consider the demands on resources of the Centre as well as states in the process of carrying out their respective functions. Union territories have not found any mention in these documents, because they were possibly considered an implied burden on the Centre. However, Delhi and Puducherry, both of which are UTs with legislature, have never been considered by any Finance Commission while determining the share in central taxes. In October last year, the Centre decided to treat Puducherry “at par with states” for the purpose of devolution of funds, but not Delhi.
Delhi chief minister Arvind Kejriwal and his deputy and finance minister Manish Sisodia point out that Delhi pays as much as Rs 1.08 lakh crore or 13% of India’s entire direct tax collection. Credit: PTI Files
In fact, the terms of reference for FC-XV went one step further to exclude Delhi. Clause 3 of the terms have the following sub-clauses:
(ii) The demand on the resources of the Central Government particularly on account of defence, internal security, infrastructure, railways, climate change, commitments towards administration of UTs without legislature, and other committed expenditure and liabilities;
(iii) The demand on the resources of the State Governments, particularly on account of financing socioeconomic development and critical infrastructure, assets maintenance expenditure, balanced regional development and impact of the debt and liabilities of their public utilities;
On the one hand, sub-clause (ii) states that the commission shall consider the financial burden of administering UTs without legislature (Chandigarh, Lakshadweep, etc.), and on the other, sub-clause (iii) which deals with state governments, makes no mention of UTs with legislature.
What makes Delhi’s conundrum more pronounced is the manner in which the finance commission determines the distribution of funds to states for supporting local bodies. Chapter 9 of the FC-XIV report reveals that the commission used the State Finance Commission (SFC) reports to recommend the distribution of Rs 87,143 crore for urban local bodies. SFCs, like the Central Finance Commission, are also constitutionally mandated. Delhi has constituted its fifth SFC, but has been unable to fully implement the recommendations of the fourth SFC.
Despite Delhi being a UT with legislature, for the purpose of devolution of funds to its municipal bodies, it is considered a state. But when it comes to receiving its fair share of central taxes to foot the bill of the SFC’s recommendations, Delhi is neither a state nor a UT.
If the Centre can include Puducherry as a constituent of the FC-XV, why should Delhi not be treated similarly?
There needs to be a much larger legislative intervention to improve Delhi’s status. With the ongoing dispute between the Centre and Delhi government in the Supreme Court over the extent of powers enjoyed by the latter under the current constitutional scheme, it is unlikely that this BJP government may be keen on such interventions. However, there is one area where the two governments can reach common ground.
When the constitution was amended to introduce the Goods and Services Tax (GST), Article 246A clarified that the word ‘state’ would include ‘UTs with legislature’, for the purpose of that Article. A similar amendment can be made for all the articles that apply to the provisions in the constitution for distribution of taxes. If such an amendment is made, Delhi will have to be included in the award of the FC-XV. This will help the ruling BJP as well, since Delhi will have enough funds to implement the recommendations of the SFC, and BJP-ruled municipal bodies will benefit the most.
Central Bureau of Direct Taxes data shows Delhi pays as much as Rs 1.08 lakh crore or 13% of India’s entire direct tax collection and receives Rs 325 crore each year from the Centre. Contrary to perception, Delhi’s government does not run on central funds, despite being the capital city. In fact, Delhi contributes a disproportionate amount as central taxes that are actually used by other states.
There is obviously nothing wrong with Delhi’s tax money being used in other states, but isn’t it time Delhi gets its due?
Akshay Marathe is National Joint Secretary, Aam Aadmi Party. He works with the Delhi government on education policy.