As NRIs from Gulf return, Kerala eyes Rs 50-bn special grant from 15th FC

Kerala has also demanded that the tax share from the Centre be increased from the current 42% to 50%

The Kerala government has sought special grants to the tune of around Rs 50 billion from the 15th Finance Commission. The state government said it has raised claims for grant funds, including Rs 15 billion for rehabilitation of Keralites who are returning from Gulf countries following the crisis there.  

This development comes even as Kerala has protested the Centre's suggestion to the Commission to consider the tax sharing and devolution based on the 2011 census under the Terms of Reference (ToR).   

The state government has said that if the Finance Commission decides to provide special sector grants to states, then it is putting forward demands under relevant constitutional provisions for financial aid to certain sectors. 

This would include Rs 15 billion each for coastal management and rehabilitation of Keralites coming back from overseas, another Rs 10 billion for forest protection, Rs 2.5 billion as relief for rubber producers, and Rs 7.5 billion for skill development. The state has also sought that the Commission continue the grant towards revenue deficit, said Kerala Finance Minister T M Thomas Isaac. 

"We have brought together as many states as we can and have informed the honourable President of India about our concerns, through a memorandum. However, the central government has revealed its stand so far," he stated in the Kerala Assembly this week. 

The concern is that the Union government has reportedly mandated the Commission in the ToR to base its decision for tax sharing and devolution of resources on the 2011 census as against the practice of using the 1971 census. The southern states have protested this, stating that they have worked on population control during this period. Therefore, according to them, if tax sharing and devolution are based on the latest population data, then they would stand to lose, while some other states, which were not that focused on population control, would benefit.     

Kerala has demanded that the Commission revise the tax sharing method to address this issue. It has also sought that the Commission neither change nor recommend a change in the maximum limit for debt from the current norm of three per cent of the gross state domestic product (GSDP). The state's other demands are that the tax share from the Centre should be increased from the current 42 per cent to 50 per cent and that there should be flexibility for the Commission to decide on the weightage given towards population.   

Earlier, Isaac had said that with the shift to the 2011 census, Tamil Nadu will lose Rs 400 billion and Kerala would see a loss of Rs 200 billion, apart from other financial impacts.

The Commission will be submitting its report to the central government by September 2019, he said, adding that the state has done whatever it can to present its views to the Commission. 

The state finance department met the Finance Commission in the last week of May and, according to Isaac, had a detailed discussion on various aspects of Kerala's financial situation.

Isaac said that the state government has informed the Commission that the fiscal deficit had increased above the permissible limit of three per cent because of the deposits by various departments in the public accounts and that by withdrawing them, the state was able to bring down the deficit to around three per cent.  

The government has also stated in its Budget for 2018-19 that the deficit will be contained below three per cent during the fiscal. 

The Kerala government is of the view that while there is no dispute on providing more financial support to states that are backward in terms of development, the recommendations should not be detrimental to the fiscal situation of other states.