In Indian federal democracy, a State’s relative population size gains political and economic significance. The strong linguistic identities and regional renaissances in political and social spheres propelled the southern States to scale greater heights in all spheres of development.

UPSC EXAM NOTES ANALYSIS:

1. Delimitation and Political representation

• Article 81 of the Indian Constitution stipulates that Lok Sabha constituencies in the country should be equal by the size of population.
• Based on the 1971 Census, the number of Lok Sabha constituencies for States was determined and frozen for the next 25 years through the 42nd Amendment Act 1976
• In 2001, through the 84th Amendment Act, the freeze on the number of constituencies for each State was further prolonged until the first Census after 2026
• The population growth rates differ between the non-Hindi speaking southern States and the Hindi-speaking northern States
• Between 1971 and 2011, the proportion of the population of Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya
  Pradesh, Rajasthan, Uttarakhand and Uttar Pradesh increased from 44% to 48.2%, whereas the proportion of the population of the five southern States (Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Telangana) declined from 24.9% to 21.1%. 
• If equal size of Lok Sabha constituencies by population is enforced today as in the population projections of 2023, the five southern States will lose 23 seats, while the northern States will gain 37.
• In other words, the proportion of political representation of northern States will increase by 6.81% and that of southern States will decline by 4.24%
• The problem of balancing the political representation of sub-central units that have lower populations arises in all federations
• The attempt to equalise the size of constituencies by population is based on the dictum, “One Person, One Vote”

2.Finance Commission

The Finance Commission is a constitutional body in India that plays a crucial role in the fiscal federalism of the country.

It is established under Article 280 of the Constitution of India and is responsible for recommending the distribution of financial resources between the central government and the state governments

Functions and responsibilities:

1. Resource Allocation: The Finance Commission recommends the sharing of tax revenues and grants-in-aid between the central government and the state governments. This allocation is crucial in ensuring that the states have adequate financial resources to meet their expenditure requirements.

2. Tax Devolution: The commission determines the share of central taxes that should be devolved to the states. This includes taxes like the Goods and Services Tax (GST), income tax, and other centrally collected taxes.

3. Grants-in-Aid: It recommends grants-in-aid to states based on their specific needs and requirements. These grants are provided to address revenue deficits, promote balanced regional development, and support states in executing their plans and programs.

4. Fiscal Discipline: The Finance Commission assesses the financial positions of both the central and state governments and makes recommendations to ensure fiscal discipline, efficiency in resource utilization, and sustainable financial management.

5. Criteria for Distribution: The commission employs various criteria to determine the distribution of resources, which may include factors like population, area, revenue collection efforts, and socio-economic indicators. These criteria aim to achieve a fair and equitable distribution of funds.

6. Recommendations: The recommendations made by the Finance Commission are submitted to the President of India, who then presents them to Parliament. The central government implements the commission's recommendations through legislative and executive actions.

7. Periodic Review: The Finance Commission is typically constituted every five years to review and recommend the distribution of financial resources for the next five-year period. This periodic review ensures that resource allocation aligns with changing economic and fiscal conditions.

• Population plays a significant role in fiscal transfers, especially in countries with decentralized fiscal systems, where the central government allocates financial resources to subnational entities, such as states, provinces, or municipalities.
• The role of population in fiscal transfers is related to the principle of equity, where resources are distributed to address disparities in the needs and capacities of different regions or jurisdictions
• Once in five years the Union government constitutes a Finance Commission to recommend, among other things, the share of each State in the assigned tax revenue of the Union government.
• Every Finance Commission recommends a formula for the horizontal distribution of the Union government’s tax revenue among the States
• Population and per capita income of a State are considered to be two important indicators that are always included in the distribution formula with larger weights
• Population of a State is a measure of demand for public expenditure. Therefore, it is an important variable in the distribution formula
• The first Finance Commission decided a State’s share based on its population size. The
  successive Finance Commissions reduced the weight assigned to the population in the distribution formula while including other variables. 
• The Union government, in its terms of reference to the Eighth Finance Commission (1984-
  89), stipulated to use only the 1971 population in the distribution instead of the 1981 population
• Thus, for the first time, the established practice of rewarding the southern States for controlling the population was replaced by awarding the populous States
• The terms of reference of the Fifteenth Finance Commission openly declared taking the 2011
  population in the distribution formula. With this, the southern States lost the advantage of getting some financial rewards for population control
• Therefore, the southern States have already started facing reduced financial transfers from the Union government as a reward for controlling population growth