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The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations. The 15th Finance Commission is required to submit two reports. The first report will consist of recommendations for the financial year 2020-21. The final report with recommendations for the 2021-26 period will be submitted by October 30, 2020. In this post, we explain the key recommendations of the report.
What is the amount of tax devolution to the states, and how is it being calculated?
The Finance Commission uses certain criteria when deciding the devolution to states. For example, income distance criterion has been used by the 14th and 15th Finance Commissions. Under this criterion, states with lower per capita income would be given a higher share to maintain equity among states. Another example is Demographic Performance criterion which has been introduced by the 15th Finance Commission. The Demographic Performance criterion is to reward efforts made by states in controlling their population.
The 15th Finance Commission used the following criteria while determining the share of states: (i) 45% for the income distance, (ii) 15% for the population in 2011, (iii) 15% for the area, (iv) 10% for forest and ecology, (v) 12.5% for demographic performance, and (vi) 2.5% for tax effort. For 2020-21, the Commission has recommended a total devolution of Rs 8,55,176 crore to the states, which is 41% of the divisible pool of taxes. This is 1% lower than the percentage recommended by the 14th Finance Commission.
Table 1 below compares the new criteria with the criteria recommended by the 14th Finance Commission.
Table 1: Criteria for devolution (2020-21)
Criteria |
14th FC 2015-20 |
15th FC 2020-21 |
Income Distance |
50.0 |
45.0 |
Population 1971 |
17.5 |
- |
Population 2011 |
10.0 |
15.0 |
Area |
15.0 |
15.0 |
Forest Cover |
7.5 |
- |
Forest and Ecology |
- |
10.0 |
Demographic Performance |
- |
12.5 |
Tax Effort |
- |
2.5 |
Total |
100 |
100 |
Sources: Report for the year 2020-21, 15th Finance Commission; PRS.
Uttar Pradesh and Bihar have received the largest devolutions for 2020-21, receiving Rs 1,53,342 crore, and Rs 86,039 crore respectively. Karnataka and Kerala saw the largest decreases in the share of the divisible pool with a decrease of 0.49% and 0.25% respectively. Table 2 below displays the state-wise breakdown of the share in the divisible pool and the total devolution.
Table 3: Share of states in the centre’s taxes
State |
14th Finance Commission |
15th Finance Commission |
Devolution for FY 2020-2021 |
||
Share out of 42% |
Share in divisible pool |
Share out of 41% |
Share in divisible pool |
(In Rs crore) |
|
Andhra Pradesh |
1.81 |
4.31 |
1.69 |
4.11 |
35,156 |
Arunachal Pradesh |
0.58 |
1.38 |
0.72 |
1.76 |
15,051 |
Assam |
1.39 |
3.31 |
1.28 |
3.13 |
26,776 |
Bihar |
4.06 |
9.67 |
4.13 |
10.06 |
86,039 |
Chhattisgarh |
1.29 |
3.07 |
1.4 |
3.42 |
29,230 |
Goa |
0.16 |
0.38 |
0.16 |
0.39 |
3,301 |
Gujarat |
1.3 |
3.1 |
1.39 |
3.4 |
29,059 |
Haryana |
0.46 |
1.1 |
0.44 |
1.08 |
9,253 |
Himachal Pradesh |
0.3 |
0.71 |
0.33 |
0.8 |
6,833 |
Jammu and Kashmir |
0.78 |
1.86 |
- |
- |
- |
Jharkhand |
1.32 |
3.14 |
1.36 |
3.31 |
28,332 |
Karnataka |
1.98 |
4.71 |
1.49 |
3.65 |
31,180 |
Kerala |
1.05 |
2.5 |
0.8 |
1.94 |
16,616 |
Madhya Pradesh |
3.17 |
7.55 |
3.23 |
7.89 |
67,439 |
Maharashtra |
2.32 |
5.52 |
2.52 |
6.14 |
52,465 |
Manipur |
0.26 |
0.62 |
0.29 |
0.72 |
6,140 |
Meghalaya |
0.27 |
0.64 |
0.31 |
0.77 |
6,542 |
Mizoram |
0.19 |
0.45 |
0.21 |
0.51 |
4,327 |
Nagaland |
0.21 |
0.5 |
0.23 |
0.57 |
4,900 |
Odisha |
1.95 |
4.64 |
1.9 |
4.63 |
39,586 |
Punjab |
0.66 |
1.57 |
0.73 |
1.79 |
15,291 |
Rajasthan |
2.31 |
5.5 |
2.45 |
5.98 |
51,131 |
Sikkim |
0.15 |
0.36 |
0.16 |
0.39 |
3,318 |
Tamil Nadu |
1.69 |
4.02 |
1.72 |
4.19 |
35,823 |
Telangana |
1.02 |
2.43 |
0.87 |
2.13 |
18,241 |
Tripura |
0.27 |
0.64 |
0.29 |
0.71 |
6,063 |
Uttar Pradesh |
7.54 |
17.95 |
7.35 |
17.93 |
1,53,342 |
Uttarakhand |
0.44 |
1.05 |
0.45 |
1.1 |
9,441 |
West Bengal |
3.08 |
7.33 |
3.08 |
7.52 |
64,301 |
Total |
42 |
100 |
41 |
100 |
8,55,176 |
Sources: Reports of 14th and 15th Finance Commission; PRS.
What are the various grants recommended by the 15th Finance Commission?
The Terms of Reference of the Finance Commission require it to recommend grants-in-aid to the States. These grants include: (i) revenue deficit grants, (ii) grants to local bodies, and (iii) disaster management grants.
14 states are estimated to face a revenue deficit post-devolution. To make up for this deficit, the Commission has recommended revenue deficit grants worth Rs 74,341 crore to these 14 states. Additionally, three states (Karnataka, Mizoram, and Telangana) have received special grants worth Rs 6,674 crore. The special grants are being given to compensate for a decline in the sum of tax devolution and revenue deficit grants in 2020-21 as compared to 2019-20.
The Commission has recommended a total of Rs 90,000 crore for grants to the local bodies in 2020-21. This amounts to an increase over the Rs 87,352 crore allocated for 2019-20 for the same. The new allocation is 4.31% of the divisible pool. Of this sum, Rs 60,750 crore has been recommended for rural local bodies, and Rs 29,250 crore for urban local bodies. These grants will be made available to all three tiers of Panchayat- village, block, and district.
To promote local-level mitigation activities, the Commission has recommended the setting up of National and State Disaster Management Funds. Recommended grants for the State Disaster Risk Management Fund is Rs 28,983 crore, while the allocation for the National Disaster Risk Management Fund is Rs 12,390 crore.
Apart from these, guidelines for performance-based grants and sector-specific grants have been outlined. The Commission has recommended a grant of Rs 7,375 crore for nutrition in 2020-21. Sectors for which sector-specific grants will be provided in the final report include: (i) nutrition, (ii) health, (iii) pre-primary education, (iv) judiciary, and (v) railways.
For more details, please see our summary of the report.
The Minister of Home Affairs introduced the Citizenship (Amendment) Bill, 2019 today in Lok Sabha. It is scheduled to be taken up for discussion and passing by the House later today. The Bill amends the Citizenship Act, 1955, and seeks to make foreign illegal migrants of certain religious communities coming from Afghanistan, Bangladesh, and Pakistan eligible for Indian citizenship. In this blog, we look at the criteria for determining citizenship in India, discuss how the Bill proposes to change the criteria, and highlight other key changes proposed by the Bill.
How is citizenship acquired in India?
In India, citizenship is regulated by the Citizenship Act, 1955. The Act specifies that citizenship may be acquired in India through five methods – by birth in India, by descent, through registration, by naturalisation (extended residence in India), and by incorporation of territory into India. [1]
Can illegal migrants acquire citizenship?
An illegal migrant is prohibited from acquiring Indian citizenship. An illegal immigrant is a foreigner who either enters India illegally, i.e., without valid travel documents, like a visa and passport, or enters India legally, but stays beyond the time period permitted in their travel documents. An illegal migrant can be prosecuted in India, and deported or imprisoned.
In September 2015 and July 2016, the central government exempted certain groups of illegal migrants from being imprisoned or deported. [2] These are illegal migrants who came into India from Afghanistan, Bangladesh, or Pakistan on or before December 31, 2014, and belong to the Hindu, Sikh, Buddhist, Jain, Parsi, or Christian religious communities.
How does the Bill seek to change the criteria for determining citizenship?
The Bill proposes that the specified class of illegal migrants from the three countries will not be treated as illegal migrants, making them eligible for citizenship. On acquiring citizenship, such migrants shall be deemed to be Indian citizens from the date of their entry into India and all legal proceedings regarding their status as illegal migrants or their citizenship will be closed.
The Act allows a person to apply for citizenship by naturalisation, if the person meets certain qualifications. One of the qualifications is that the person must have resided in India or been in central government service for the last 12 months and at least 11 years of the preceding 14 years. For the specified class of illegal migrants, the number of years of residency has been relaxed from 11 years to five years.
Are the provisions of the Bill applicable across the country?
The Bill clarifies that the proposed amendments on citizenship to the specified class of illegal migrants will not apply to certain areas. These are: (i) the tribal areas of Assam, Meghalaya, Mizoram, and Tripura, as included in the Sixth Schedule to the Constitution, and (ii) the states regulated by the “Inner Line” permit under the Bengal Eastern Frontier Regulations 1873. These Sixth Schedule tribal areas include Karbi Anglong (in Assam), Garo Hills (in Meghalaya), Chakma District (in Mizoram), and Tripura Tribal Areas District. Further, the Inner Line Permit regulates visit of all persons, including Indian citizens, to Arunachal Pradesh, Mizoram, and Nagaland.
Is the differentiation among the specified class of illegal migrants and all other illegal migrants reasonable?
The Bill makes only certain illegal migrants eligible for citizenship. These are persons belonging to the six specified religious communities, from the three specified countries, who entered India on or before December 31, 2014, and do not reside in the Sixth Schedule areas or in the states regulated by the Inner Line Permit states. This implies that all other illegal migrants will not be able to claim the benefit of citizenship conferred by the Bill, and may continue to be prosecuted as illegal migrants. Any provision which distinguishes between two groups may violate the standard of equality guaranteed under Article 14 of the Constitution, unless one can show a reasonable rationale for doing so. [3] The Bill provides differential treatment to illegal migrants on the basis of (a) their country of origin, (b) religion, (c) date of entry into India, and (d) place of residence in India. The question is whether these factors serve a reasonable purpose to justify the differential treatment. We examine this below.
The Bill classifies migrants based on their country of origin to include only Afghanistan, Pakistan and Bangladesh. While the Statement of Objects and Reasons (SoR) in the Bill reasons that millions of citizens of undivided India were living in Pakistan and Bangladesh, no reason has been provided to explain the inclusion of Afghanistan. The SoR also states that these countries have a state religion, which has resulted in religious persecution of minority groups. However, there are other countries which may fit this qualification. For instance, two of India’s neighboring countries, Sri Lanka (Buddhist state religion) [4] and Myanmar (primacy to Buddhism) [5], have had a history of persecution of Tamil Eelams (a linguistic minority in Sri Lanka), and the Rohingya Muslims, respectively. [6], [7], [8]
Further, there are other religious minorities from Pakistan, Afghanistan and Bangladesh, such as the Ahmadiyya Muslims in Pakistan (considered non-Muslims in that country) [9], and atheists in Bangladesh [10] who have faced religious persecution and may have illegally migrated to India. Given that the objective of the Bill is to provide citizenship to migrants escaping from religious persecution, it is not clear why illegal migrants belonging to other neighbouring countries, or belonging to religious minorities from these three specified countries, have been excluded from the Bill.
The Bill also creates further differentiation between the specified class of illegal migrants based on when they entered India (before or after December 31, 2014), and where they live in India (provisions not applicable to Sixth Schedule and Inner Line Permit areas). However, the reasons provided to explain the distinction is unclear. Note that certain restrictions apply to persons (both citizens and foreigners) in the Sixth Schedule areas and in the states regulated by the Inner Line Permit. Once an illegal migrant residing in these areas acquires citizenship, he would be subject to the same restrictions in these areas, as are applicable to other Indian citizens. Therefore, it is unclear why the Bill excludes illegal migrants residing in these areas.
How does the Bill change the regulations for Overseas Citizens of India?
The Bill also amends the provisions on registration of Overseas Citizens of India (OCI). OCI cardholders are foreigners who are persons of Indian origin. For example, they may have been former Indian citizens, or children of current Indian citizens. An OCI enjoys benefits such as the right to travel to India without a visa, or to work and study here. At present, the government may cancel a person’s OCI registration on various grounds specified in the Act. In case of a cancellation, an OCI residing in India may be required to leave the country. The Bill adds another ground for cancelling OCI registration — violation of any law notified by the central government. However, the Bill does not provide any guidance on the nature of laws which the central government may notify. The Supreme Court has noted that this guidance is necessary to set limits on the authority’s powers and to avoid any arbitrariness in exercise of powers. [11] Therefore, the powers given to the government under the Bill may go beyond the permissible limits of valid delegation.
Note: The blog has been updated to remove the following issue: “Second, the Bill delegates the power to notify laws and not offences. This may result in the cancellation of OCI for minor violations. For instance, the government may want to cancel the registration of an OCI who is found guilty of sedition, under the Indian Penal Code, 1861. However, since the government cannot notify one offence, it will need to notify the entire Indian Penal Code, which would include minor offences such as rash and negligent driving.”
[1]. Section 2(1)(b) of the Citizenship Act, 1955.
[2]. State of West Bengal vs Anwar Ali Sarkar, AIR 1952 SC 75.
[3]. State of West Bengal vs Anwar Ali Sarkar, AIR 1952 SC 75.
[4]. Article 9 of the Constitution of the Democratic Socialist Republic of Sri Lanka states: “The Republic of Sri Lanka shall give to Buddhism the foremost place and accordingly it shall be the duty of the State to protect and foster the Buddha Sasana, while assuring to all religions the rights granted by Articles 10 and 14(1)(e).”
[5]. Articles 361 and 362 of the Constitution of the Republic of the Union of Myanmar state the following. “361. The Union recognizes special position of Buddhism as the faith professed by the great majority of the citizens of the Union. 362. The Union also recognizes Christianity, Islam, Hinduism and Animism as the religions existing in the Union at the day of the coming into operation of this Constitution.”
[6]. It is estimated that there are over a lakh Sri Lankan refugees in India, two-thirds of them in government camps. See https://timesofindia.indiatimes.com/city/chennai/why-lankan-refugees-are-reluctant-to-go-back-home/articleshow/65591130.cms
[7]. “Myanmar Rohingya: What you need to know about the crisis”, BBC News, April 24, 2018, https://www.bbc.com/news/world-asia-41566561.
[8]. “Why India is refusing refuge to Rohingyas”, Times of India, September 6, 2017, https://timesofindia.indiatimes.com/india/why-india-is-refusing-refuge-to-rohingyas/articleshow/60386974.cms.
[9]. The Second Amendment to the Constitution of Pakistan passed in 1974 effectively declared Ahmaddiyas as non-Muslims.
[10]. For example, see https://www.theguardian.com/world/2016/jun/11/bangladesh-murders-bloggers-foreigners-religion.
[11]. Hamdard Dawakhana and Anr., v. The Union of India (UOI) and Ors., AIR1960SC554; Confederation of Indian Alcoholic Beverage Companies and Ors. vs. The State of Bihar and Ors., 2016(4) PLJR369.