TOR does not inhibit the Finance Commission in assigning appropriate weight to multiple variables for devolution in a combination of rewards and incentives, Balancing the compulsions of equity and efficiency necessary– N. K. Singh

Finance Commission concludes its visit to Kerala today; Enormous progress in terms of per capita income and in Human Development Index appreciated

Terms of Reference (TOR) does not inhibit the Finance Commission in assigning appropriate weight to multiple variables on devolution (of which population is one) and in a combination of rewards and incentives which does not penalise the states which have made significant progress on population front, said the Chairman, Shri N K Singh while addressing a Press Conference in Thiruvananthapuram. Based on the TOR received, Commission is committed to addressing them. It is committed to an even handed position in regard to centre and states and viewing them in totality without any bias. He said that Commission will give a report which is fair, rational and reasonable. It has to balance the compulsions of equity and efficiency in terms of a combination of rewards and incentives.

Kerala has made enormous progress in terms of per capita income and in Human Development Index, recognised the Chairman. Chairman placed on record the Commission's appreciation for adoption of SDGs in the developmental priorities of the state. He appreciated the sate govt. for ensuring high GDP growth rate, dramatic poverty reduction and setting up a model in local self govt institutions. Kerala has set a benchmark in triple devolution of funds, functions and functionaries to the third tier of governance by creating a strong network of neighbourhood groups.

Notwithstanding, the Commission observed some deficiencies in non-utilization of funds leading to lapsing of resources and perhaps a better implementation mechanism. Commission also sought more information regarding implementation of 5^th State Finance Commission recommendations. There was a strong plea that within three tiers, District Panchayat which was left out by 14^th FC should be revisited for ensuring the resources to perform obligatory functions. State has also made significant progress in other social indicators like electrification and eliminating open defecation. Commission observed following challenges which the state govt needs to tackle:

1. To sustain a rate of growth to deal with enormous expenditure outlays that Kerala is required to make.
2. To manage its high debt to GDP ratio as per the FRBM Act of the State
3. Capital expenditure needs to be enhanced.
4. Kerala has problem of increasing ageing population which increases its liability.
5. Fiscal deficit as well as revenue deficit of Kerala has gone up.
6. Challenge of managing public sector undertakings especially State Transport Corporation and state electricity board.

Kerala looking forward for a generous and fair allocation of Resources – State suggests an alternative formula for devolution based on population

              Chief Minister Shri Pinarayi Vijayan and Finance Minister Dr. T.M Thomas Issac welcomed the Commission and thanked the members for their visit to Kerala in the early stages of deliberations. In their detailed presentations on state finances, officials emphasised on enhancing the devolution to the states, including a criteria of ‘Demographic Goals Achievement’, continuation of Revenue Deficit grants and compensating the State for the opportunity cost of preserving forest cover, among others.

The Chief Minister submitted a detailed Memorandum to the Commission. An additional memorandum would also be submitted for consideration of the sectoral needs of the State. Chairman complemented the Govt. of Kerala for making an illuminating presentation to the commission regarding the opportunities and challenges in all the sectors of the economy of the state. He also stated that the issues raised would receive appropriate consideration during deliberation in the Commission.

Commission also sought views of the leaders from various political parties, local bodies and representatives from Trade and Industry. They focussed on giving some grant for backward areas in addition to performance grants and skill development of manpower of Local Bodies.

15th Finance Commission is on a 4 day visit to the state of Kerala from 28th May 2018. It also made field visits to Nutrimix Unit at Koratti, Kodali Govt. LPS, Green Army, Vadakkancherry, Waste Management facility in Kunnamkulam Municipality, all in Thrissur on 30^th May. Commission concludes its visit by visiting Kochi Metro on 31^st May. The Commission appreciates the constructive and useful suggestions made by the State Govt for the development of the state and appreciated the warm hospitality extended by the State Govt. The Commission also looked forward to continuing interaction with the State Government. The Commission will finalise its recommendations by October 2019 after completing its discussions with all the State Governments, the Government of India and relevant stakeholders.

Devolution flexibility allows multiple weighted criteria to balance rewards and incentives for fair state allocations. Terms of Reference (TOR) do not prevent the Finance Commission from assigning weight to multiple variables and using a mix of rewards and incentives in devolution to avoid penalising states with demographic progress. The Commission will balance equity and efficiency, consider population among several factors, seek further data on fund utilisation and State Finance Commission implementation, and address Kerala's fiscal challenges including debt, deficits, capital expenditure needs, ageing liabilities and stressed public undertakings.