It is interesting to witness how BJP leaders gold-plate the Narendra Modi phenomenon. A recent demonstration was given by BJP's Tamil Nadu chief K Annamalai. The former IPS officer was in Thiruvananthapuram on April 21 to attend a Digital Conclave organsied as part of the campaign of Thiruvananthapuram's NDA candidate Rajeev Chandrasekhar.
Since fiscal bullyism was one of the major allegations hurled at the Modi dispensation by the LDF government in Kerala, Annamalai picked two aspects of fiscal federalism and sought to establish that Modi, contrary to being a state-smotherer, was a benevolent statesman.
Claim #1: Modi the population slayer
First, Annamalai claimed that it was after Modi arrived on the scene that the abnormally high weightage given to the population criterion was dramatically reduced while sharing central funds with states.
Higher the population higher the share of central funds. States like Kerala have a problem with the population criterion after the 15th Finance Commission adopted the 2011 census for the devolution of central funds. By 2011, unlike certain north Indian states like Uttar Pradesh and Bihar, Kerala had stabilised its population and so it was argued that using the 2011 census as the benchmark would end up punishing Kerala for its commendable success in population control.
Population still has the second highest weightage (15%). The other criteria used to decide the share of each state are: Income distance or fiscal backwardness (45%), geographical area (15%), demographic performance (12.5%), tax efforts (2.5%) and forest and ecology (10%). are some of the other criteria used to decide the share of each state.
Annamalai claimed that the excessive weightage of 60% given to the population criterion when a sharing formula was devised for the first time in 1969 was maintained right till 2014 when Modi came to power. "In 2000, the tax sharing formula was renamed as Gadgil-Mukherji formula from just Gadgil formula and still we maintained the 60% weightage for population," he said and added: "But when Modi took over, what started as 60% became 15%. Finally, there was some logic to the formula."
This amounted to an erasure of even the Vajpayee years. Fact is, during the 11th FC, when the NDA government under A B Vajpayee was in power (1998-2004), the weightage for population was only 10%. During the 12th and 13th FCs, when the UPA government under Manmohan Singh was in power, the weightage was 25%. After Modi came to power, the 14th FC recommended 17.5% weightage for population. And it was the 15th FC (2021-26) that made it 15%.
The DP story: Annamalai also said that 'demographic performance' (DP) was included for the first time under Modi.
This is true. It was the 15th FC that used the 2011 census as the measure of population for the first time and, by way of compensation, had introduced 'demographic performance' to reward efforts made by states in controlling their population after 1971; 12.5% was the weightage given.
But a deeper truth is this. It took a group of finance ministers, led by Kerala's Thomas Isaac, to mount a massive intellectual offensive to eventually convince the 15th FC to introduce the DP criterion.
Claim #2: Modi the generous
The second claim was grander. Annamalai said the states' share in the divisible pool rose from 30.5% to 32% in the 10 years of the Manmohan Singh tenure. Under Modi, it shot up to 42%.
On the face of it, the claim is not bogus. Problem is, it masks a cunning strategy that robs the states of funds even while showing that they are being provided more.
The states' share from the divisible pool might have increased but so have cesses and surcharges imposed by the Centre. The Centre has no legal obligation to share cesses and surcharges with states.
This is what the report of the 15th FC says: "These cesses and surcharges (excluding GST compensation cess) averaged 13.1% of the
gross tax revenue (GTR) during the 2016-17 to 2018-19 period. This component amounted to Rs. 3.18 lakh crore in 2018-19. With the increase in the special additional duty on excise and road cess on petrol and diesel in 2020 and with the assumption that there will be no further change in their current structure, these cesses and surcharges are estimated to average 18.4% of gross tax revenue between 2021-22 and 2025-26." Meaning, the Centre need not bother share with states nearly 20% of the revenue it collects annually.
The upshot of this, according to R Mohan, the former IRS official who penned 'India's Federal Setup: A Journey Through Seven Decades', is: "The share of states in the divisible pool of taxes as a percent of GTR has been continuously declining from 34.77% in 2015-16 to 32.37% in 2019-20." In 2020-21, it fell to 29.4%.
In other words, the actual devolution to states under Modi is not 42% as claimed by Annamalai but just about 30%.