North-South Formula

medium119123854Talk of delimitation of Parliament seats post-2026 has deepened an already existing north-south cleavage. Southern states have long been aggrieved that they are penalised for their better performance on population control as that has meant a reduction in their relative share of central transfers. Now on top of that, in the event of a fresh delimitation based on a post-2026 Census, they face the prospect of losing their relative share in Parliament representation.At the heart of this putative double whammy for the south — declining central transfers and decline in political clout — is population. Recall that a few months ago both Chandrababu Naidu, Andhra CM, and Stalin, his Tamil Nadu counterpart, had urged their peoples to have more babies. Although the two CMs nuanced the issue differently, the underlying message was clear: don’t penalise states that have succeeded in population control. If you do, we have no alternative but to grow our populations.Politics and economics are mixed in these tensions. Take economics first. There are several routes through which central resources flow to states. Population enters as a variable either directly or indirectly in determining a state’s share in each of these flows.The most structured of these is finance commission transfers whereby Centre gives away 41 paise out of every rupee it collects to states. The horizontal distribution of this 41 paise across states is determined by a formula in which most variables are scaled by population — the larger a state’s population, the higher its share.Finance commissions have historically been mandated to use the 1971 population numbers so as not to perversely incentivise states to neglect family planning with an eye on a higher share of tax devolution. This long-standing norm was changed when the 15th Finance Commission, appointed in 2017, was asked to use the 2011 population numbers in working out its recommendations. States that had done well in stabilising populations, typically southern states, protested against this change in the base year, calling it a ‘penalty for good performance’.Possibly taking a lesson from that, the 16th Finance Commission appointed in 2023 has not been given any specific mandate on what population figures to use. It is very unlikely though that they will revert to the 1971 numbers.The second major route for central resource support to states is centrally sponsored schemes (CSS). Here again, the share of a state in the total CSS pool is largely driven by its population although in a less structured way than finance commission transfers.Central public investment via soft infra (example: an IIT or an AIIMS) and hard infra (example: roads, ports) is another major route for central resource flow to states. This is the most politically driven segment of central support and is obviously influenced by vote banks. States with larger populations tend to corner more benefits.All in all, states with larger populations tend to get privileged in central resource support to states. As population growth rates have diverged in recent decades, states that have done well on population control have begun to hurt more.Let us turn to the political dimension — delimitation of Parliament seats. In order not to disincentivise the small family norm, delimitation of Parliament seats on the basis of population was frozen for 25 years in 1976, and again for another 25 years by the Vajpayee govt in 2001. The big question now is: Will a BJP-run Centre force delimitation in order to expand and consolidate BJP’s advantage in the north?Both the politics and economics of these tensions are ticklish. Pushing southern states into reversing population control will be decidedly ill-advised. The reality is that at the national level, we still have a population problem. At 1.45 billion, our population continues to be above the carrying capacity of our ecosystem. We need no more evidence of this than what we see and experience every day — our squalid slums and squatter settlements, our crowded cities and clogged streets, drying lakes and dying rivers, barren hilltops, toxic air and polluted water. If anything, we should continue to emphasise population control, especially in states where fertility rates are above replacement levels.One possible solution to this conundrum would be to set the 2011 population as the new norm for both central resource transfers and for delimitation, and freeze it at that level for the next 25 years.The delimitation should be gradual with a 20% adjustment every five years starting 2031. So, delimitation based on 2011 population will take full effect by 2051.Let me end on a positive note. Centre-state tensions are not unique to India; every large federation is roiled by them. In comparison, the way we manage unity in diversity is in fact a cause for celebration.We can resolve the present confrontation too. But it requires much more than strong political leadership; it requires statesmanship — and at all levels.The writer is a former RBI governor