June 30, 2024

HP: CPI(M) Asks Finance Commission for Fair Resource Devolution to the State

Onkar Shad

ON June 24, 2024, a delegation of the Communist Party of India (Marxist), Himachal Pradesh, including Rakesh Singha, Kuldip Singh Tanwar, and Sanjay Chauhan, met the 16th Finance Commission during their visit to the state. CPI(M) urged the 16th Finance Commission to prioritise Himachal Pradesh's unique challenges, including its rugged terrain, harsh climate, and reliance on the primary sector. It is crucial for financial decisions to go beyond a mechanical devolution approach and cover areas such as revenue, expenditure norms, resource allocation, debt restructuring, and relief funding.

The levels of socio-economic development of states depend on a variety of factors like population size, population growth, infrastructure, location and availability of financial resources. As is well known, poverty, illiteracy and backwardness coexist and reinforce each other and, in order to break this vicious circle, availability of financial resources is a pre-requisite. Therefore, to promote equity and reduce disparity among states, special assistance becomes the sine-qua-non. Under the present financial dispensation, most of the high yielding and elastic taxes are within the jurisdiction of the central government. The central government raises more revenues than it spends directly and transfers a part of resources to the state governments through various mechanisms viz., Finance Commission recommendations, state plan grants, centrally sponsored schemes, etc. Under the Finance Commission transfers, the share in central taxes covers barely half the amount and other half comes under the 'discretionary power' which makes the states suffer from dependency syndrome. The delegation urged the Finance Commission to look into this aspect so that discretion is reduced to a reasonable extent, bringing states out of this syndrome for attaining true fiscal federalism.

The CPI(M) delegation emphasized several key points in advocating for Himachal Pradesh to be considered a special category state. Firstly, the state's extreme altitude variation, ranging from 1,400 feet to 26,000 feet, creates one of India's most challenging terrains. Secondly, service delivery in Himachal Pradesh is severely affected by factors like low population density, difficult terrain, harsh climate, and small, sparsely populated villages where 80 per cent have fewer than 200 inhabitants each. This demographic structure escalates costs and efforts to provide essential services compared to more densely populated plain regions. Thirdly, the rugged terrain significantly inflates construction material costs due to the challenges of transportation across narrow, hilly tracts, hindering both initial project affordability and access to remote areas crucial for economic and social development.

The delegation members further indicated that 67 per cent of area of the state is forest land which are governed by the central government acts and policies like the Forest Conservation Act (FCA) and Wild Life Protection Act 1972. This governance restricts revenue-generating activities such as logging, as state adheres to the central government's decision to ban green felling, resulting in a decline in forest revenue substantially post 1998, necessitating continued dependence on central assistance. The forests play a crucial role in ecological balance and watershed management, benefiting states like Punjab, Haryana, Rajasthan, Western Uttar Pradesh, and Delhi, while also significantly contributing to carbon sequestration, with estimated stocks totaling 7204 million metric tons. Himachal Pradesh's vulnerability to climate change is exacerbated by its location in the sub-Himalayan and Himalayan regions, experiencing increased occurrences of extreme weather events like heavy rainfall, storms, heatwaves, droughts, and flash floods. The region has seen a doubling in intense rainfall events over the past 50 years and faces environmental challenges from glacier retreat impacting river catchments. Adequate funding for ecosystem services, conservation efforts, afforestation, and resilience-building measures is crucial to mitigate these risks and ensure sustainable development in this fragile Himalayan ecosystem.

The CPI(M) delegation strongly advocated several critical points to address Himachal Pradesh's financial and developmental challenges. Firstly, they emphasized the urgent need for the 16th Finance Commission to provide a Revenue Deficit Grant to bridge the substantial gap faced by the state, highlighting a Rs. 10,725 crore shortfalls over five years due to inadequate increases compared to other states under previous commissions. Secondly, the delegation called for transparent and equitable norms in devolving surcharge and cess collections, aligning with recommendations from the CAG, to ensure fair distribution benefiting all stakeholders. Thirdly, in light of the devastating 2023 disasters that claimed numerous lives and caused extensive damage, they pressed for substantial funding from the 16th Finance Commission, proposing measures like 100 per cent compensation for special category hill states, quadrupling State Disaster Response Fund (SDRF) allocations, and relaxing National Disaster Response Fund (NDRF) norms to cover significant portions of destroyed assets. Lastly, to tackle the agrarian crisis, they suggested reducing GST rates to zero on essentials in agriculture, horticulture, and animal husbandry, alongside reinstating budget provisions for Market Intervention Scheme (MIS), aimed at fostering sustainable economic growth in the state.

The CPI(M) emphasized the crucial role of the 16th Finance Commission in addressing these challenges and establishing fair principles for fund allocation to drive the state towards sustainable development as increased financial support aimed across infrastructure, agriculture, tourism, and social services will encourage resilience and promote inclusive growth.