Dr. A.M. Khusro: Chairman of the Eleventh Finance Commission

Dr. Ali Mohammed Khusro (1925-2003) was a distinguished Indian economist, administrator, and academic. He is best remembered for his significant contributions to Indian economic policy and his chairmanship of the Eleventh Finance Commission, which submitted its report in 2000.

Born in Hyderabad, Khusro received his education at Cambridge University, obtaining a Ph.D. in Economics. His academic career spanned several prestigious institutions, including Osmania University, the Institute of Economic Growth in Delhi, and the Aligarh Muslim University, where he served as Vice-Chancellor. He also held the position of Ambassador to Germany, showcasing his diplomatic skills and broadening his understanding of international economics.

The Eleventh Finance Commission, constituted under Article 280 of the Indian Constitution, was tasked with recommending the principles governing the distribution of tax revenues between the Union and the States for the period 2000-2005. Given the complexities of India’s federal structure and the diverse economic conditions of its states, the Commission’s role was crucial in ensuring fiscal equity and stability.

Under Dr. Khusro’s leadership, the Commission adopted a pragmatic approach, aiming to balance the fiscal needs of both the central government and the states. Some of the key recommendations included:

• Devolution Formula: The Commission recommended that 29.5% of the net proceeds of all central taxes be devolved to the states. This marked an increase from the 29% recommended by the Tenth Finance Commission.
• Criteria for Distribution: The Commission employed a weighted formula to determine the share of each state in the divisible pool. The criteria included population, income distance (the distance of a state’s per capita income from the highest per capita income among all states), area, infrastructure development index, and tax effort.
• Grants-in-Aid: Besides tax devolution, the Commission also recommended grants-in-aid to states under Article 275 of the Constitution. These grants were intended to address specific needs and promote balanced regional development.
• Debt Relief: Recognizing the burden of debt on some states, the Commission also made recommendations for debt relief and restructuring.
• Fiscal Discipline: The Commission emphasized the need for fiscal discipline and transparency at both the central and state levels, encouraging responsible financial management and expenditure control.

The Khusro Commission’s report was lauded for its comprehensive analysis, its sensitivity to the needs of both the Union and the States, and its emphasis on fiscal prudence. While some states expressed concerns about certain aspects of the recommendations, the report provided a framework for fiscal federalism in India for the subsequent five years.

Dr. A.M. Khusro’s chairmanship of the Eleventh Finance Commission was a testament to his intellectual prowess, his deep understanding of the Indian economy, and his commitment to public service. His legacy continues to shape the discourse on fiscal federalism in India, reminding policymakers of the importance of balancing efficiency, equity, and stability in the distribution of resources.