NITI Aayog suggests Finance Commission should reward performing states

National think tank NITI Aayog has proposed a formula through which the Centre’s divisible pool of taxes is shared with states in a way that the interests of states performing well on the social development front are not ignored.

According to a Mint report, NITI Aayog vice-chairman Rajiv Kumar said that it was clear that the formula for the pool of taxes must have a performance-based component so that states that have achieved some progress in these parameters don't get punished.

The think tank also noted that these measures must be taken up in a gradual manner as the federal nature of resource sharing is politically sensitive.

The 15th Finance Commission (FFC), headed by NK Singh, suggested that the use of the 2011 census be taken up for the allocation of resources, as opposed to the 1971 census.

However, the report pointed out that this would leave a lower allocation of resources towards southern states like Tamil Nadu, Karnataka and Andhra Pradesh, that have a lower rate of population growth, while northern states like Bihar and Chhattisgarh may end up getting a higher allocation of resources.

The Chief Minister of Karnataka Siddaramaiah made the argument that this would disincentivise states to take up development-related measures.

On the other hand, the allocation of would mean cutting off backward states from the funding they need. So Kumar suggested the allocation of resources be based on the social development goal (SDG) performance of states in a phased manner, by allocating a small portion of the divisible pool of taxes.