People's Democracy

I AM taking the earliest opportunity to launch the protest of the state government of Kerala against the acceptance of the "monitorable fiscal reform programme aimed at the reduction of revenue deficits of states," recommended by the Eleventh Finance Commission (EFC) in its supplementary report submitted in response to the Additional Term of Reference (ATOR) to the EFC.

You will kindly recall that when several states, including Kerala, raised the issue of propriety entailed by the particular ATOR in the Inter-State Council (ISC) meeting on May 20, 2000, the union finance minister had, after a long discussion, given an undertaking to come back to the council with the recommendations of the EFC. (This can be checked with audio recording of the council’s meeting.) We naturally assumed that the government of India (GoI) would give the council's view on whatever scheme the EFC would formulate in response to the ATOR, in deciding on its Action Taken Report (ATR). It has come to us as a great shock that a scheme which seeks to encroach upon the limited freedom the states enjoy under the constitution to decide on their fiscal policy and the role they assign to different fiscal instruments, would be accepted by the GoI without consultation in the Inter-State Council.

Please permit me to recall that at the aforesaid Inter-State Council meeting, Kerala, along with several states, had taken the view that the ATOR amounted to an attempt at "nothing short of imposing on the states a programme of fiscal reform using the instrumentality of statutory financial devolution." The scheme drawn up by the EFC for a monitorable fiscal reform programme, to be implemented by the states, reinforces our suspicion that the ATOR would result in an invasion of the limited autonomy of the state governments in regard to their fiscal management, since the whole scheme rests on the establishment of state- specific groups, designated as Monitory Agencies, to be constituted with the representatives of the Planning Commission, union finance ministry and each state government. Each state would be expected to abide by the programme devised by such a group on pain of losing a portion of the assessed revenue deficit grant the state is entitled to on the basis of EFC's assessment.

I do not wish to burden you with my detailed objections to the scheme that the GOI has accepted. But I do wish to emphasise that there is still time to discuss the scheme in all its details at a forum to be constituted by the Inter-State Council, and make necessary modifications, keeping in mind the basic need of not encroaching on the limited fiscal autonomy of the states. While the need for a continuing effort at fiscal reform by not only states but even by the centre cannot be denied, the manner in which the EFC has proposed a scheme to subject only the states to fiscal reforms, to be superimposed on them, will be totally violative of the basic federal character of our constitution.