Disparate fund-allocation issue puts fresh wind to Opposition’s listless sails

In the run-up to the Lok Sabha elections, Opposition parties, particularly those in power in the Southern states, have initiated a series of protests in Delhi, against the BJP-led Centre for its alleged “anti-democratic” stance and encroachment upon the country’s federal structure. The state leaderships have come together to “expose the glaring inequality” in the distribution of tax revenues among states.

A day after Karnataka’s protest on February 7, the LDF government in Kerala, which has also moved Supreme Court against the Centre’s alleged interference in states’ fiscal matters, protested at Jantar Mantar as well. On the second day, the ranks of dissent were bolstered by the presence of two other Chief Ministers — Arvind Kejriwal of Delhi and Bhagwant Mann of Punjab — who joined Kerala Chief Minister Pinarayi Vijayan at the protest site.

“A good start”

The protests followed a series of setbacks for the Opposition INDIA alliance, including an electoral one in November, the exit of Nitish Kumar in Bihar, and problems with Chief Minister Mamata Banerjee in West Bengal. Tara Krishnaswamy, co-founder of Political Shakthi, an organization that strives for the representation of women in politics, says that though the protests are not being done as a “single, unified alliance, it is a good start for the southern states.”

“Karnataka is worst-affected, but it obviously cannot raise the issue in Parliament because Congress has only one MP in the state. Unlike in Tamil Nadu, awareness is also not great in Karnataka about state autonomy or fiscal federalism. That is because unlike Tamil Nadu, Karnataka was always ruled by national parties. So, for the state government to come forward to launch these protests, for the Congress to be seen as speaking for state rights, is a very good thing,” Tara added.

Taking fight to Delhi

Just as the INDIA alliance was seen as crumbling under pressure, facilitating another easy win for the BJP in the parliamentary elections, the states have taken the economic protests to the national level. Leaders hope that the protests will “unmask the truth of the BJP among the public”.

The protests in Delhi resounded with accusations against the BJP for inadequately allocating funds to the states. “Mr (Pinarayi) Vijayan is not here to ask for money for his family. He is here to get the allocations due to Kerala,” Kejriwal said at the protests, adding that other than denying resources, the Centre was using Governors and Lieutenant Governors to create impediments to the Opposition-ruled governments.

The Delhi Chief Minister referred to the arrests of Opposition leaders and said it was “a tactic” used by the BJP to silence the Opposition. “We, the Opposition parties, represent 70 crore people of this country. Are you considering these states as your enemies?” Kejriwal asked, seeking Prime Minister Narendra Modi’s explanation on the “attacks on federal rights.”

Disparate fund allocation

The issue of disparate fund allocation among states has been simmering for months now. At an Assembly session last October, Tamil Nadu Finance Minister Thangam Thennarasu highlighted the state’s fiscal disadvantage stemming from historical policy decisions on population control. Citing figures, he underscored Tamil Nadu’s disproportionate contribution to direct taxes compared to the meagre returns received through devolution, juxtaposing it with the more favourable treatment accorded to states like Uttar Pradesh.

A Kalaiyarasan, an economist and professor at the Madras Institute of Development Studies, underscored the inevitability of disparities among states. “It is widely acknowledged among economists that the gap between the states is significant. Despite expectations of narrowing disparities following the economic liberalization of the 1990s, this trend did not materialize,” he observed.

The effects

Consequently, there has been a divergence in both the Total Fertility Rate (TFR) and per-capita income among states. “In states like Tamil Nadu and Kerala, the TFR is below replacement level, whereas in the North, particularly Bihar and Uttar Pradesh, it remains above three,” Kalaiyarasan explained. This demographic contrast inevitably leads to a disproportionate population weight between states, impacting various facets, including financial allocation.

Kalaiyarasan elaborated on the mechanisms influencing financial allocation, emphasizing the role of population weight and per-capita income disparity in the deliberations of the Finance Commission. States with greater deviations from the national income average are allocated more resources. This allocation formula, he noted, compounds issues related to states’ individual economic challenges such as low growth rates.

Interconnected issues

The economist also highlighted the interconnectedness of this issue with delimitation and the allocation of parliamentary seats. “For instance, a parliamentary constituency in Uttar Pradesh may have a population 50 per cent larger than that of states like Kerala or Tamil Nadu,” he illustrated. This population disparity renders meaningful representation challenging and fuel demands for delimitation and additional parliamentary seats. While Kalaiyarasan added that this is legitimate, he also cautioned about risking regional equilibrium.

The fundamental role of the Finance Commission, Kalaiyarasan contended, is to rectify both vertical and horizontal imbalances in fiscal federalism. While vertical imbalances concern jurisdictional disputes between the Centre and the states regarding tax matters, horizontal imbalances focus on reducing developmental disparities among states. However, he noted that the population and income distance criteria inevitably result in subsidizing well-off states at the expense of poorer ones.

“Not specific to South”

The exacerbation of this issue under the BJP’s central leadership has heightened tensions. Interestingly, DMK MP Kanimozhi shared a video of Narendra Modi as Gujarat Chief Minister, speaking about how Gujarat has been unfairly treated in the devolution of funds.

“Today, our protests represent the voice of Indians across the (central) BJP government,” said V Sivadasan, CPI(M) Rajya Sabha MP from Kerala. He said that characterizing the protests solely as originating from the southern states was misleading. “It’s inaccurate to portray this as exclusively a South-centric movement. Punjab is also actively participating. The Union government, of course, is particularly targeting non-BJP ruled states like Kerala and Tamil Nadu,” he asserted.

Sivadasan underscored the political ramifications of these protests, noting, “The populace is disenchanted with the BJP government’s anti-democratic and anti-federal policies. They are simply advocating for their rightful share in the Budget. These demonstrations will unmask the true nature of the BJP and convey a strong message to the people.”

Some issues specific to South

Tara, on the other hand, pointed out that the issues worrying the South are not the same as the rest of India. “Some issues may be the same, like the Hindutva hegemony. But issues like fiscal federalism are not the same across the country. The fact that the state governments predominantly from the South have started doing this close on the heels of the Interim Budget is bound to send a powerful message. It is well-timed.”

In response to the protests initiated by Karnataka, Union Finance Minister Nirmala Sitaraman said the state’s leadership was fostering a “separatist mindset” and propagating a “false narrative” regarding fund allocation. She attributed Karnataka’s protests to the government feeling pressure stemming from the financial burden incurred by fulfilling electoral promises.

The issue might continue to be on the boil till the elections but, as Kalaiyarasan pointed out, there is also a need to strike a balance between regional aspirations and democratic principles in finding a solution to this issue.