ToR of 15th Finance Commission: Will South India lose out to the North owing to lower fertility rates?

- Chaitanya Mallapur

Mumbai: As leaders of south Indian states raise  concerns  over the terms of reference for the  15th Finance Commission  alleging that they would be at a disadvantage, south Indian states have reduced their fertility rates below replacement level, while the rate for states such as Bihar and Uttar Pradesh remains above the level, according to an IndiaSpend analysis of government data.

The replacement rate of fertility is 2.1, the  level  at which a population exactly replaces itself from one generation to the next.

In 2016, Tamil Nadu’s total fertility rate (TFR)–the number of children a woman will have in a lifetime–was the lowest among India’s large states at 1.6, and other south Indian states–Andhra Pradesh and Telangana (1.7), Kerala and Karnataka (1.8)–also have rates below the replacement level of fertility, according to the latest Sample Registration System  data , under Office of the Registrar General & Census Commissioner, India. The national average TFR was 2.3.

Bihar reported the worst TFR among the bigger states in India at 3.3 in 2016, followed by Uttar Pradesh (3.1). Madhya Pradesh (2.8) and Rajasthan (2.7), all north Indian states.

The  Terms of Reference  (ToR)  proposed  to the 15th Finance Commission–which lays out the roadmap for revenue sharing between the Centre and states, and among states–suggest to take into account the 2011 census, instead of the 1971 census which was used earlier.

The 14th Finance Commission used a  weight  of 17.5 percent for the 1971 census population, 10 percent for 2011 census population, 15 percent for area, 50 percent for fiscal discipline and 7.5 percent for forest cover.

The ToR for 15th Finance Commission do not mention the allocation of weights to various parameters.

The central government has proposed that the 15th Finance Commission incentivise states who have taken efforts to control population growth, Prime Minister Narendra Modi  said  in Chennai on 12 April, 2018.

“A state like Tamil Nadu, which has devoted a lot of effort, energy and resources towards population control would certainly benefit,” Modi said, in  response  to allegations made by southern states over discrimination in central funding, and biases towards certain states.

The Union Government has suggested to the Finance Commission to consider incentivizing States who have worked on population control. Thus, a state like Tamil Nadu, which has devoted a lot of effort, energy and resources towards population control would certainly benefit: PM

— PMO India (@PMOIndia) April 12, 2018

Fertility rates of northern states remain above replacement levels

Bihar’s TFR in 1981 was 5.7, which declined to 3.3 to 2016. In comparison, Tamil Nadu’s TFR declined by more than half from 3.4 in 1981 to 1.6 over the same period, indicating that the state was successful in implementing population control measures.

States in the north–Uttar Pradesh (3.1), Madhya Pradesh (2.8) and Rajasthan (2.7)–had higher TFR, all above the replacement level of fertility.

The southern states  allege  that the new Finance Commission terms will benefit states in the north having larger populations, despite the former performing better on governance/development parameters such as population control over the years.

“Southern states could potentially lose up to Rs 8,000 crore, if the ToR were implemented,” Thomas Isaac, Kerala’s finance minister said, the News Minute  reported  on 24 April, 2018.

However, states such as Maharashtra in the west and West Bengal in the east also have low TFRs–1.8 and 1.6 (same as Tamil Nadu), respectively.

Rs 1.25 lakh crore at stake

If the 14th Finance Commission had used the revised terms, Rs 1.25 lakh crore would have been redistributed, according to this 10 March, 2018,  article  by V Bhaskar, former special chief secretary finance to the government of Andhra Pradesh, and former joint secretary Thirteenth Finance Commission, in the Economic & Political Weekly.

Bhaskar calculated potential gains and losses to states based on the 2011 census using the share allocated under 14th Finance Commission.

“All the five southern states would have been the biggest losers, along with West Bengal, Odisha, Assam and Punjab,” Bhaskar wrote in his article titled Challenges before the Fifteenth Finance Commission.

Source:  Economic & Political Weekly

‘Heartland states more dependent on central funds’

“The heartland states have less lucrative tax bases, and are more dependent on central funds,” TN Ninan, chairman, Business Standard Private Limited, wrote in a  column  in Business Standard on 30 March, 2018. “Devolution from the Centre accounts for a half or more of their total revenue; in Bihar’s case, it is three-quarters. Whereas the southern states are dependent on the Centre for only a third of their total revenue.”

“The imbalance persists even after devolution, as seen in expenditure per head,” Ninan argued. “Without more resources, how do the poorer states improve their people’s health and education indices, so as to achieve better population control?”

Southern states that have been able to limit population growth perform better in terms of per capita income compared to states in the north.

For instance, between 1991-2011, Kerala’s population rose 14 percent while its per capita income (at constant prices) increased 53 times (5,262)–from Rs 1,826 in 1991-92 (base 1980-81) to Rs 97,912 (base 2011-12) in 2011-12.

In comparison, while Rajasthan’s population increased by 56 percent over the same period, its per capita income increased only 32 times (3,172 percent) from Rs 1,755 in 1991-92 to Rs 57,427 in 2011-12.

Source:  Reserve Bank of India ; Note: 1991-92 figures are for undivided Andhra Pradesh; 2011-12, 2014-15 are for newly formed state of Andhra Pradesh; NA-not available

“Education is the best contraceptive pill,” Poonam Muttreja, executive director, Population Foundation of India, an advocacy working on family planning, had told IndiaSpend,  reported  on 22 January, 2018.

The TFR for women between 15-49 years is  lower  at 1.71 for women with more than 12 years of education compared with 3.06 to women with no education and 2.2 for all women.

Population of big northern states grew faster than southern states

In 1971, the four south Indian states comprised 25 percent (135 million) of India’s population. By 2011, this figure was down to 21 percent (251 million). In comparison, the share of north Indian states–Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh–rose from 33 percent (182 million) in 1971 to 37 percent (445 million) in 2011.

Between 1971-2011, the population growth of north Indian states has been higher compared to states in the south.

For instance, Bihar’s population in 2011 was reported to be over 104 million, an increase of 147 percent from 42 million in 1971. Tamil Nadu, which had a similar population of 41 million in 1971, restricted its population rise to 75 percent over the same period to reach 72 million.

The population of Rajasthan increased by 166 percent in 2011 over 1971, followed by Bihar (147 percent), Madhya Pradesh (142 percent) and Uttar Pradesh (138 percent). In comparison, Kerala reported a 56 percent increase, followed by Tamil Nadu (75 percent), Andhra Pradesh (94 percent) and Karnataka (109 percent) over the same period.

Population control not the only factor for incentives

The population is not the only parameter for providing incentive to states. The states will also be judged on other development indicators such as the implementation of goods and services tax, flagship schemes, sustainable development goals and promoting ease of doing business.

Source:  Terms of Reference 15th Finance Commission

In terms of ease of doing business, performance of states show mixed results. States such as Haryana, Chhattisgarh and Madhya Pradesh ranked among the top three in  implementation of ease of doing business parameters as on 17 April, 2018.

Andhra Pradesh ranked fourth, Telangana sixth, and Rajasthan eighth above Karnataka (10). Similarly, Uttar Pradesh ranked 14, above Tamil Nadu (15)  followed by Bihar (18) and Kerala (21).

“Every Finance Commission creates its winners and losers,” Ninan  wrote . “Between the 11th and 14th commissions, three of the southern states (the exception being the combined Andhra Pradesh) were significant losers in terms of share of central taxes. But northern and eastern states were also losers: UP, Bihar (including Jharkhand), West Bengal and Odisha.”

“The gainers included the western giants Maharashtra and Gujarat,” Ninan argued. “So one should not jump to facile north-south conclusions — especially since the commission has also been asked to reward fiscal performance and population control.”

(Mallapur is an analyst with IndiaSpend)