Report of the Group of Interlocutors for Jammu and Kashmir

Pallavi - May 25, 2012

The central government appointed the J&K Interlocutors Group on October 13, 2010. The Group submitted the Report to the Home Ministry earlier this year. The Report was made public by the Home Ministry on May 24, 2012. It may be noted that under Article 370 of the Constitution special status has been granted to the State of Jammu and Kashmir. The power of the Parliament to legislate is restricted to defence, external affairs, communication and central elections. However, the President may with the concurrence of the state government extend other central laws to the state. Furthermore, in 1952, an agreement known as the Delhi Agreement was entered into between the state of Jammu and Kashmir and the central government. The Agreement too provided that the state government shall have sovereignty on all subjects except for matters specified above. However, since then some central laws relating to other subjects such as environment have been made applicable to the state. This blog post divides the recommendation into two broad headings: political; and socio-economic. It also looks at the roadmap proposed by the Group to achieve these recommendations. Political recommendations:

The Group recommended that a Constitutional Committee (CC) should be set up to review all the central Acts that have been extended to the state of Jammu and Kashmir since 1952. The CC should come out with its findings within six months. According to the Group, the CC should review whether, and to what extent, the application of central acts to the state has led to an erosion of the state's special status.
The word ‘Temporary’ in Article 370 should be replaced with ‘Special’ which has been used for certain states such as Assam, Nagaland, Andhra Pradesh[1].
Central laws shall only be made applicable to the state if they relate to the country's security or a vital economic interest, especially in the areas of energy and water resources.
Currently, the Governor is appointed by the President. The Group recommended that the state government shall give three names for consideration for the position to the President. However, the Governor shall finally be appointed by the President.
Separate Regional Councils for Jammu, Kashmir and Ladakh should be created and certain legislative, executive and financial powers should be devolved to them. The subjects that could be transferred to the Regional Council include prison reforms, public health, roads and bridges and fisheries.

Cultural, Economic and Social Recommendations:

There are 16 centrally sponsored schemes which are mostly funded by the centre. However, most of the funds for these schemes have not been utilised properly. The Group recommended that an effective system to monitor these schemes should be put in place.
An expert committee to review the state’s financial needs should be constituted.
The central government should tap the hydro-electricity potential of the state. Till date only 15 per cent of the potential has been harnessed. Additional hydro-electricity projects should be established for which the central government should meet the entire equity capital.
Industrial establishments and other buildings occupied by the security officers should be vacated.
Financial package of incentives on the pattern given to the North Eastern States should be given to the state.
The hilly, remote areas should be declared as special development zones.
The restrictions on the internet and mobile phones should be reviewed.

In order to fulfil these recommendations, the Interlocutor’s Group proposed the following roadmap:

The ‘stone pelters’ and political prisoners against whom no serious charges have been framed should be released.
There should an amendment and review of the Armed Forces Special Powers Act, 1990 and the Jammu and Kashmir Public Safety Act, 1978.
The state policy should provide for the return of Kashmiri Pandits.
A judicial commission to supervise the identification of bodies buried in the unmarked graves should be established.

The full report may be accessed here. Sources:

[1] Article 371 provides certain ‘special provisions’ with respect to states of Maharashtra, Gujarat, Nagaland, Assam, Manipur, Andhra Pradesh and Sikkim

Policy

Central Transfers to States: Role of the Finance Commission

Gayatri Mann - April 11, 2018

In November 2017, the 15^th Finance Commission (Chair: Mr N. K. Singh) was constituted to give recommendations on the transfer of resources from the centre to states for the five year period between 2020-25. In recent times, there has been some discussion around the role and mandate of the Commission. In this context, we explain the role of the Finance Commission.

What is the Finance Commission?

The Finance Commission is a constitutional body formed every five years to give suggestions on centre-state financial relations. Each Finance Commission is required to make recommendations on: (i) sharing of central taxes with states, (ii) distribution of central grants to states, (iii) measures to improve the finances of states to supplement the resources of panchayats and municipalities, and (iv) any other matter referred to it.

Composition of transfers: The central taxes devolved to states are untied funds, and states can spend them according to their discretion. Over the years, tax devolved to states has constituted over 80% of the total central transfers to states (Figure 1). The centre also provides grants to states and local bodies which must be used for specified purposes. These grants have ranged between 12% to 19% of the total transfers.

Fig 1 Over the years the core mandate of the Commission has remained unchanged, though it has been given the additional responsibility of examining various issues. For instance, the 12^th Finance Commission evaluated the fiscal position of states and offered relief to those that enacted their Fiscal Responsibility and Budget Management laws. The 13^th and the 14^th Finance Commissionassessed the impact of GST on the economy. The 13^th Finance Commission also incentivised states to increase forest cover by providing additional grants.

15^th Finance Commission: The 15^th Finance Commission constituted in November 2017 will recommend central transfers to states. It has also been mandated to: (i) review the impact of the 14th Finance Commission recommendations on the fiscal position of the centre; (ii) review the debt level of the centre and states, and recommend a roadmap; (iii) study the impact of GST on the economy; and (iv) recommend performance-based incentives for states based on their efforts to control population, promote ease of doing business, and control expenditure on populist measures, among others.

Why is there a need for a Finance Commission?

The Indian federal system allows for the division of power and responsibilities between the centre and states. Correspondingly, the taxation powers are also broadly divided between the centre and states (Table 1). State legislatures may devolve some of their taxation powers to local bodies.

Table 1

The centre collects majority of the tax revenue as it enjoys scale economies in the collection of certain taxes. States have the responsibility of delivering public goods in their areas due to their proximity to local issues and needs.

Sometimes, this leads to states incurring expenditures higher than the revenue generated by them. Further, due to vast regional disparities some states are unable to raise adequate resources as compared to others. To address these imbalances, the Finance Commission recommends the extent of central funds to be shared with states. Prior to 2000, only revenue income tax and union excise duty on certain goods was shared by the centre with states. A Constitution amendment in 2000 allowed for all central taxes to be shared with states.

Several other federal countries, such as Pakistan, Malaysia, and Australia have similar bodies which recommend the manner in which central funds will be shared with states.

Tax devolution to states

Table 2 The 14th Finance Commission considerably increased the devolution of taxes from the centre to states from 32% to 42%. The Commission had recommended that tax devolution should be the primary source of transfer of funds to states. This would increase the flow of unconditional transfers and give states more flexibility in their spending.

The share in central taxes is distributed among states based on a formula. Previous Finance Commissions have considered various factors to determine the criteria such as the population and income needs of states, their area and infrastructure, etc. Further, the weightage assigned to each criterion has varied with each Finance Commission.

The criteria used by the 11^th to 14^thFinance Commissions are given in Table 2, along with the weight assigned to them. State level details of the criteria used by the 14th Finance Commission are given in Table 3.

Population is an indicator of the expenditure needs of a state. Over the years, Finance Commissions have used population data of the 1971 Census. The 14^th Finance Commission used the 2011 population data, in addition to the 1971 data. The 15^th Finance Commission has been mandated to use data from the 2011 Census.
Area is used as a criterion as a state with larger area has to incur additional administrative costs to deliver services.
Income distance is the difference between the per capita income of a state with the average per capita income of all states. States with lower per capita income may be given a higher share to maintain equity among states.
Forest cover indicates that states with large forest covers bear the cost of not having area available for other economic activities. Therefore, the rationale is that these states may be given a higher share.

Table 3

Grants-in-Aid

Besides the taxes devolved to states, another source of transfers from the centre to states is grants-in-aid. As per the recommendations of the 14^th Finance Commission, grants-in-aid constitute 12% of the central transfers to states. The 14^th Finance Commission had recommended grants to states for three purposes: (i) disaster relief, (ii) local bodies, and (iii) revenue deficit.

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Report of the Group of Interlocutors for Jammu and Kashmir

Central Transfers to States: Role of the Finance Commission

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