Full text of letters MK Stalin wrote to PM Narendra Modi, 10 Chief Ministers warning of unfair financial allocations to states

NEW DELHI: DMK working president MK Stalin has written to Prime Minister Narendra Modi and the Chief Ministers of 10 states warning that certain decisions being made unilaterally by the Fifteenth Finance Commission (XVFC) would end up penalising some states for bringing their populations under control, while giving more money to the states that had failed to achieve this. 

Stalin wrote two letters, one to PM Modi and the other to the Chief Ministers. Both letters were similar in content, except for the last bit.

Here is the full text of the letter Stalin wrote to PM Modi and the Chief Minsters of 10 states:

Vanakkam. I hope this letter finds you in good health. I write on an important issue regarding States' Fiscal Autonomy within the Indian Union: The Terms of Reference of the Fifteenth Finance Commission (XVFC). I am concerned about certain elements of the Terms of Reference (ToR) for the Fifteenth Finance Commission (XVFC), which will affect the very fabric of equitable and just devolution of central tax revenues to the states. 

As you know, Section 15 of the Forty-Second Amendment to the Constitution (1976) of India effected a freeze on the population figures gathered during the 1971 census as being the basis for all delimitation until after the 2001 census. This was done to allay the fears of the states which had taken and implemented effective population control measures. and to reassure them that they would not lose parliamentary seats to states that had not taken effective measures to control their population. Section 3 of the Constitution (Eighty Fourth Amendment) Act 2001 extended the deadline to 2026.

For the same reason, the ToR's of all the Finance Commissions over the years since 1976 have mandated that the 1971 census should be the basis when computing allocations using population-based weightage factors.

However, for the XVFC, the Central Government has for the first time, without consulting the States. stipulated an entirely different approach in the ToR. To be specific: 

- in Term #4 (ii) that the Commission may (inter alia) consider proposing measurable performance-based incentives to "Efforts and progress made in moving towards replacement level of population growth", and

- in Term #5 that The Commission shall use the population data of 2011 while making its recommendations." 

These two Terms of Reference will negatively impact the allocations to many progressive states like ours in a compound way. On the one hand, we will be losing disproportionally by the use of2011 census data as the basis, and on the other, we will also be deprived of any incentive under Term #4, as we achieved (or exceeded) the neutral net reproductive rate target long ago. Taken together, these must be construed as the most counter-productive measures taken hitherto with regard to population control incentives provided by the central government. 

In fact, these drastic ToR changes will reduce the distribution of central revenues to the progressive states by a very substantial margin, which will not only be a travesty of justice but will also be construed as an ill-conceived effort to systematically divert resources to States which have never made serious attempts at population control.

The ToR for the XVFC (Term #4 (iii)) also propose, inter alia, using an incentive measure of "Achievements in the implementation of flagship schemes of the Government of India....". Progressive states have already implemented the, own socio-economic programmes in accordance with the requirements of their respective states and achieved exemplary results well in advance of the Government of India promoting equivalent schemes. States like ours have already achieved objectives like universal electricity connection, road connectivity to all villages, comprehensive cooking gas connections and free rations to families below BPL, well before the Government of India's schemes were even proposed in such areas, let alone implemented with any success. Therefore, it is condemnable that such a regressive ToR focused on Government of India's programs alone is included, as opposed to a more neutral ToR which referenced progress towards the target outcomes of such programs, irrespective of whether the program originated at the Centre or the State. That this Term was inserted without consulting the states makes this action even more inimical to the spirit of cooperative federalism. 

Further, there is a strange Term of reference 4(viii), which runs as follows:

"Control or lack of it in incurring expenditure on populist scheme."

It is fundamentally un-Democratic that the un-elected members of the Central Finance Commission should even claim to judge which schemes are "populist" in any State. Who has the authority to convey such authoritarian powers, above and beyond those of the duly elected governments in each State, to a small Committee? This is a constitutional question, and it is my belief that this term of reference is unconstitutional, and it violates the due powers of every elected State government.

The XVFC, as implied in the ToR's paragraph 1(ii) is not even going to consider revenue gaps as was considered by previous Finance Commissions, since the phrase 'states which are in need of assistance' is missing this time. Under these circumstances, the attempt to give the members of the Finance Commission (whose selection had no input from any State Government) authority to determine which schemes are 'populist' amounts to an assault on States' rights. It is, and must continue to be, the responsibility of every state to progressively eliminate revenue deficits. What will result if the XVFC can, at its sole discretion, consider certain schemes as populist and therefore eliminate them from their basis of the revenue expenditure totals of the States, without even giving any opportunity to the States to explain their position. 

The Government of India has proclaimed that you function on the principles of cooperative federalism. However, the announcement of the Terms of Reference for the Fifteenth Finance Commission, which are vital for the effective and efficient functioning of the states for live years after the award, without any consultation with the states not only contradicts the principles of federalism, but in fact clearly biases any likely outcome in favour of certain states at the expense of others.

There is a GST Council of state finance ministers with the Union Finance Minister as its Chairman. Does it not behove the Prime Minister and the Union Finance Minister to take into confidence this Council, which has been established specifically for the implementation of GST, when the impact of GST on the finances of the Centre and States figures prominently as Term #3 (v) of the ToR?

In summary, it may not be an overstatement to suggest that the fiscal autonomy of many states could be reduced to that of Municipalities due to the ill-conceived Terms of Reference of the Fifteenth Finance Commission, which were framed without consulting any of the States.

I therefore urge you to immediately modify these undemocratic and bias. Terms of Reference, and to frame the new Terms of Reference in consultation with all the States and the GST Council. This will be the only way to ensure that there will not be profound injustice perpetrated upon our States in the manner of the devolution of taxes, which will almost certainly lead to grave discontent and unrest amongst those wronged by such actions. 

In closing. I wish you good health and ongoing success in all your attempts undertaken for the welfare of the people of our country. 

Yours Sincerely,

Sd.

(M.K. STALIN)

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The letter he addressed to the Chief Ministers of 10 states that would be affected by the Centre's decision ended differently. He urged the Chief Ministers to join him in leaning on the Centre in this regard.

The letter to the Chief Ministers ended this way:

I therefore urge you to join me in demanding immediate modifications of these un-democratic and biased Terms of Reference, to be undertaken in consultation with all the States and the GST Council. This is the only way to ensure that that there will not be grave injustice perpetrated upon our States in the manner of the devolution of taxes, which will almost certainly lead to grave discontent and unrest amongst those wronged by such actions. 

In closing, I wish you good health and ongoing success in all your attempts undertaken for the welfare of the people of your State, and our country. 

Warm regards,

Sd. 

(M.K.Stalin)