16th Finance Commission interacts with the Press at Novotel, Vijayawada
* You have a very visionary Chief Minister who gave us a tour about the planned capital city Amaravati from inception and its history. He explained in graphic detail about the project: Dr. Arvind Panagariya
* Chief Minister has been making the argument that we need to look beyond just rewarding states for bringing down total fertility rates to replacement level.
* No decisions have been made. This cannot be done by definition until we have visited all these states.
* We are touring different states for the last 9 months and AP is the 23rd state that we are visiting in the process.
Vijayawada: The 16th Finance Commission, led by Chairman Dr. Arvind Panagariya, addressed the media at Novotel, Vijayawada today, following consultations with the Andhra Pradesh government. The press conference was welcomed by Sri Nivas Janardhan, Additional Secretary of Finance, with Commission members Dr. Manoj Panda, Smt. Anne George Matthew, Secretary Sri Ritvik Pandey, and Joint Secretary Sri K.K. Mishra in attendance.
Dr. Panagariya structured his address into three parts, explaining the Finance Commission's mandate, the current status of their work, and their interactions with states, including Andhra Pradesh. "Our major task is to make a recommendation to the union government about vertical devolution share to the states and how that share is divided among states," Dr. Panagariya stated. He elaborated that the Commission also responds to recommendations regarding grants for local rural and urban bodies, disaster relief and mitigation, and state/sector-specific grants.
Explaining the finance structure, Dr. Panagariya clarified that while certain taxes go directly to states (such as State GST, excise on liquor, and state taxes on petrol), the divisible pool consists of central taxes including income tax, corporate profit tax, and customs duties. The Finance Commission recommends how this divisible pool should be divided between the central government and states, and subsequently how the state share should be distributed among the 28 states.
Referring to previous allocations, Dr. Panagariya noted that the previous 15th Finance Commission recommended 41% should go to the states. All local grants or disaster relief should come from central government budget which means that the share is not limited to just 41%. He added that the share allocated to states has evolved from 29.5% during 2001-2005, to 32% later, and then a significant increase to 42% during the 14th Finance Commission, before settling at 41% with the 15th Finance Commission. “The slight reduction accounted for Jammu and Kashmir's conversion to Union Territories” he added
Speaking about their ongoing tour, Dr. Panagariya said, "We are touring different states for the last 9 months and AP is the 23rd state that we are visiting in the process." He shared that the Commission still has five more states to visit before completing their consultations.
Reflecting on their earlier meeting with the Chief Minister, Dr. Panagariya expressed admiration. He praised him as a very visionary Chief Minister who gave them a tour about the planned capital city Amaravati from inception and its history too with a beautiful video which he recommended the media too to watch which he praised to be explaining in graphic detail about the project. The Chairman recalled his association with the Chief Minister since 2015 at NITI Aayog when the Chief Minister was heading the Swachh Bharat mission and chaired the committee on digitization that led to the development of the BHIM application and UPI system.
Dr. Panagariya praised the Chief Minister's hands-on leadership, noting that he was among only two or three state leaders who personally delivered detailed presentations to the Commission. "Since he is a visionary leader, he spoke first also about what he thinks India is going to look like in the next 20-25 years, the 2047 Viksit Bharat vision, and how within that Swarna Andhra Pradesh would look like in 2047," Dr. Panagariya said. He added that the Chief Minister's presentation covered the evolution of Andhra Pradesh's economy, the impact of bifurcation, and the state's future needs.
On Andhra Pradesh's specific recommendations to the Commission, Dr. Panagariya shared that the state has asked to increase the vertical devolution share from 41% to 50%. Regarding horizontal devolution criteria, the state has suggested reducing the weight given to population from 15% to 5%, area from 15% to 5%, and modifying the forest and ecology criteria by reducing the weight on forest cover level from 10% to 5% while adding a 15% weight for increase in forest cover.
On income distance, Dr. Panagariya explained, "The state has suggested reducing the weight given to income distance from 45% to 30% and introducing a 20% weight for the contribution of agriculture and allied sectors to gross state value added." This would replace the 2.5% weight given by the 15th Finance Commission to tax and fiscal effort.
Specifically regarding demographic performance, Dr. Panagariya said, "The Chief Minister has been making the argument that we need to look beyond just rewarding states for bringing down total fertility rates to replacement level. Southern states in particular, where fertility rates have fallen well below replacement levels, face problematic increases in dependency ratios and aging populations in the longer run." He noted that Andhra Pradesh recommended increasing the weight from 12.5% to 20% while taking a more holistic approach that recognizes states may need encouragement for population increase beyond a certain point rather than further reduction. Similar concerns were raised by Assam and Tamil Nadu.
Dr. Panagariya addressed questions about special category status, explaining that this classification was used by the Planning Commission and became defunct when the Planning Commission was replaced by NITI Aayog. He confirmed that the Commission would consider Andhra Pradesh's post-bifurcation challenges, noting, "the Chief Minister talked at length about that, saying they inherited less resources, more people, less GSDP, more people, so all that had impact on the long-run finances of the state. It also had an impact on the debt that the state inherited."
On the Commission's decision-making timeline, Dr. Panagariya emphasized, "No decisions have been made. This cannot be done by definition until we have visited all these states. And even then, lot of discussions will have to happen." He mentioned that consultations with central government ministries are ongoing, and the Commission is still awaiting a memorandum from the Finance Ministry.
Dr. Panagariya highlighted a historic aspect of the 16th Finance Commission's mandate, saying that this is the first time that the central government has not given any conditions to the Finance Commission. Unlike previous commissions, such as the 15th Finance Commission which was directed to use 2011 population data instead of 1971, the current Commission has been given complete independence in formulating its recommendations.
The Chairman expressed positive concerns acknowledging the state's unique challenges while maintaining a balanced, professional stance regarding future recommendations. The Finance Commission is expected to submit its recommendations after completing its nationwide consultations and deliberations with all stakeholders.
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