STATE DISASTER RISK MANAGEMENT FUND FOR COVID 19: IS IT JUSTIFIED

UNDER PRINCIPLE OF EQUAL DISTRIBUTION

Introduction

Federal grants to the states are necessary as no system of distribution can possibly meet the need
for natural development and social services which are usually the responsibility of the states. In
fact, the needs of the states are fulfilled by grants made by the federation according to the
varying needs of the states. The federal structure of India's Constitution lays down many
institutional strategies for fostering intergovernmental cooperation between Center and States.
For stance, under Article 275, the Centre shall make grants- in- aid to the States as per Finance
Commission’s recommendations.

These federal grants become extremely necessary for a State in emergency situations like Covid
19 pandemic where the State itself cannot handle such situation. Amid Covid-19 Pandemic,
various states like West Bengal, Rajasthan, Punjab, Kerala, Telangana and Jharkhand have asked
the Centre to release funds. In response, the Centre on 3rd April 2020 released Rs 17,287.08 crore
to different states to enhance their financial resources to deal with the various challenges in the
country’s fight against the Covid-19 pandemic. The grant includes Rs 6,195.08 crore for
‘revenue deficit grant’ under the recommendations of the 15th Finance Commission to 14 states,
and Rs 11,092 crore in advance under the State Disaster Risk Management Fund [“SDRMF”] to
States to build quarantine facilities.

However, this distribution of funds is very contentious. Kerala, one of the worst affected states,
got a mere Rs 157 crore under SDRMF. On the other hand, Rs 802 crore was allocated to
Odisha, a state with far less reported cases and migrants, which is 5 times the allocation of
Kerala. So, why is there such inequality? Whether such inequality is justified under the
Constitutional framework? If not, then what is required to do in order to rectify such a mistake?
 Concept of Grants- in- aid under the Constitution of India

The idea of fiscal need has been borrowed from Australia where it has been provided that
Special grants are justified when a state through financial stress from any cause is unable
efficiently discharge its function as a member of the federation. Under the Constitution of India,
both Articles 275 and 282 are sources of spending of monies. Article 282 states that ‘the centre
may make grants for any public purpose notwithstanding that the purpose is not one with respect
to which Parliament may make laws.’ Such grants are used for a number of purposes like
promoting state action in all significant areas of the nation; even the centre may give grants as an
incentive to the states. Thus, the financial resources of the centre and states are pooled together
with a view to achieve certain preferred national goals.

Under Article 275 of the Constitution of India, the Central government can provide statutory
grants to the states. Such grants are given to those states which are in need of financial
assistance, in the form of unconditional grants. Currently, the Centre distributed the funds to all
the States under this provision since SDRMF is a statutory fund provided under Article 48 of the
Disaster Management Act, 2005 and 15th Finance Commission has recommended for such grants
to the tune of 28, 983 crore for the year 2020-21.

In India, the Constitution recognizes the problem of fiscal imbalances. Therefore, it provides
Finance Commission to resolve them by making recommendations on tax devolution and grants
in aid of revenues. The analysis of intergovernmental transfers shows that that the tax devolution
and grants given on the recommendations of the Finance Commission have a strong equalizing
element whereas, those given by various Central Ministries do not. However, in case of Covid-
19 funding, the purpose of establishing Finance Commission seems defeated. The grants
categorized by the Finance Commission do not seem fair and equalizing. Therefore, we need to
look into the constitutionality of such grants.

The Finance Commission recommendations and test of its Constitutionality

Eminent jurists such as H.M. Seervai identified the fiscal independence as one of the features of
the federal character of the Constitution.i The principle of federalism is well-founded in the
recommendations, as under Article 280(3) it decides the share of revenue, grants, etc. The
Finance Commission recommendations include both the vertical and the horizontal devolution of
the union revenue. In the present situation, the criteria adopted by the commission have caused
the decrement in the transfer to few states like Kerala. This has caused serious implications on
the autonomy of states in terms of their financial powers.
The Constitution of India envisages the sharing of tax between the centre and state, where the
centre has to share some portions of its tax with the states. The objective of federal transfer is
fiscal equalization and the Commission to be an expert body to make recommendations in a fair
and equitable manner. The right to equitable distribution incorporates the concept of equality
which is known to be as the most fundamental principle of the republicanism and basic rule of
law. The recommendations being a constitutional mandate on the Finance Commission under
Article 280(3), evidently attracts the principle of equitable distribution based on equality. Hence,
while dealing with the violations and constitutionality of the recommendations, the above
discussed principles were required to be considered.

Where the Finance Commission went wrong

The total SDRMF allocation for the year 2020-21 is Rs 28,983 crore. The latest release for the
response to COVID-19 is Rs 11,092 crore; this sum is split into the ratio suggested by the 15th
Finance Commission. The allocation formula for the fund was changed, and the15th Finance
Commission proposed a new system before the COVID-19 crisis. The criteria inter alia include
previous expenditure, population and area of the State. Unfortunately, the Finance Commission
did not consider any specific criterion pertaining to Covid- 19 like no. of confirmed cases. As a
result, its findings are odd in this context as Kerala receives Rs 53 lakh per patient while Odisha
receives some Rs 160 crore per patient. Therefore, the after-effects of 15th Finance Commission
recommendations show that the formula used by the Finance Commission was arbitrary one and
results in violation of equitable distribution of the revenue.

The Finance Commission’s goals include inter alia equity principle, efficiency, predictability
and stability, where its transfers are meant to rectify the horizontal imbalances among the states.
The preamble of the Constitution guarantees the equality of status and of opportunity. Therefore,
the Finance Commission while discharging its duties has to look into the needs of the states and
come up with the principles to take account of various factors;ii such as,
 The budgetary need.
 The promotion of activities of national importance.
 The special needs of a particular state, etc.
 The need of equalizing the social services and administration standards to a national
level.
These transfers aimed at bringing equalization serve as a valuable aid to the stability of a
federation and the citizenship rationale. The foregoing assertion is based on a premise that no
matter wherever a citizen lives, he should have access to certain important economic and social
rights.iii

Further, the doctrine of equality enshrined in the Constitution is fundamental to rule of law and
therefore is the basic feature of the Constitution. Hence, it is to adhere to the letter and spirit of
the Constitution i.e. to balance the Union and State’s revenue powers with the expenditure
responsibilities as listed in the VII schedule of the Constitution. Such equality has been breached
since relevant considerations are not being taken into account has led to the arbitrary decision.
Therefore in this case, recommendations based on irrelevant parameters violate the right to
equality of residents of Kerala. In order to rectify the same, the Finance Commission must
change the parameters and include relevant parameters like no. of confirmed cases as suggested
by the opposition. However, this process would be time consuming and such delay won’t serve
the purpose. Therefore, the Centre should adopt the other way of providing discretionary grants
to discriminated states allowed under Article 282 of the Constitution.

Way forward
In the current situation where the various states are facing financial stress, it is a responsibility of
the Centre to provide them discretionary grants allowed under Article 282 of the Constitution. As
discussed above, such grants are discretionary in nature and it depends upon the will of the
Centre to grant the same. However, the Centre cannot do away from its responsibility by merely
citing its discretion. There are many instances (here, here and here) where the Supreme Court
and other courts in India struck down the unfettered discretion of the authority. In a democratic
country like India, there cannot be anything like unfettered discretion. A state which is in a dire
need of financial support and thus requires discretionary grants, however, without considering
the relevant facts and acting at pleasure, centre made irrational and unreasonable decision to not
to give discretionary grants. In that situation there will be a clear violation of Article 14 of the
Constitution. In India, on many occasions the discretionary power were limited for instance
under Article 356, a governor cannot use its discretion without taking relevant facts into
consideration. Thus, the discretionary grants must be provided to the States that are in dire need
of the finances.
i
Alok Prasanna Kumar, For a Mess of Potage: The GST's Promise of Increased Revenue to States Comes at the Cost of the
Federal Structure of the Constitution, 28 NAT'L L. SCH. INDIA REV. 97 (2016).
ii
D.D. BASU, COMMENTARY ON THE CONSTITUTION OF INDIA 9301 (ED. 8 VOL. 8 LEXISNEXIS 2011).
iii
THOMAS J. COURCHENE, RENEGOTIATING EQUALIZATION: NATIONAL POLITY, FEDERAL STATE, INTERNATIONAL
ECONOMY, TORONTO, CANADA: C D HOWE INSTITUTE. (1998).