INCENTIVES AND FISCAL TRANSFERS

Incentives and fiscal transfers

The 13th Finance Commission (TFC), whose report was tabled in

Parliament recently, has broken new ground by building incentives into the

transfer mechanism. Most of its key recommendations have been accepted

by the government. The States stand to get a larger share of central taxes

than before. Apart from increasing their share of the divisible pool of tax

revenues from 30.5 per cent to 32 per cent, the Commission has proposed

an additional 22.5 per cent for local bodies. Grants in aid to States are

projected at Rs.315,581 crore over the next five years. The shared taxes

and central grants together will take the overall devolution to States from

37.6 per cent to 39 per cent of the central divisible tax revenues. The TFC

does not want any inconsistency between the amounts released to the

States and the percentage share in the net tax revenues recommended by

it. The States have been impressed upon to comply with the norms set by

the Commission if they are to avail themselves of the full benefit of certain

transfers. It has called upon the Centre not to lean heavily on surcharges

and cesses since collections under these heads are not shared with the

States. The transfer formula, which emphasises fiscal discipline on the part

of the States, has been so worked out that nonPlan revenue grants will be

made available to fewer States. The system of incentivebased

transfer seeks to reward States that comply with the norms prescribed by the TFC. However, given the political sensitivity of some of these proposals, the accent is on achieving incremental gains for fiscal federalism. The Commission has earmarked

Rs.50,000 crore of central grants to compensate States for any revenue

shortfall on account of switching to the Goods and Services Tax. The

compensation will be available even if there is no shortfall, provided the

State concerned adopts the GST model the TFC has prepared. This

however is going to prove contentious. The empowered committee of

State Finance Ministers has worked out its own model wherein tax rates

are higher than in the TFC's version. The States want a much higher share

of the divisible tax receipts to be transferred to them. Nor will they be

happy that the Commission has remained silent on their long standingdemands, namely decisionmaking powers in respect of centrally sponsored schemes. The government has accepted its suggestion to put a cap on the combined debt of the Centre and the States at 48 per cent of the GDP that is to be achieved by 2014-15.

Scientists take steps to defend climate work

For months, climate scientists have taken a vicious beating in the media

and on the Internet, accused of hiding data, covering up errors and

suppressing alternate views. Their response until now has been largely to

assert the legitimacy of the vast body of climate science and to mock their

critics as cranks and knownothings. But the volume of criticism and the depth of

doubt have only grown, and many scientists now realize they are facing a crisis of public

confidence and have to fight back. Tentatively and grudgingly, they are beginning to engage their critics, admit mistakes, open up their data and reshape the way they conduct their work.

Serious damage

Serious damage has already been done. A survey conducted in late

December by Yale University and George Mason University found that the

number of Americans who believed that climate change was a hoax or

scientific conspiracy had more than doubled since 2008, to 16 per cent of

the population from 7 per cent. An additional 13 per cent of Americans

said they thought that even if the planet was warming, it was a result

solely of natural factors and was not a significant concern. Climate

scientists have been shaken by the criticism and are beginning to look for

ways to recover their reputation. They are learning a little humility and

trying to make sure they avoid crossing a line into policy advocacy.

It's clear that the climate science community was just not prepared for the

scale and ferocity of the attacks and they simply have not responded

swiftly and appropriately. It needs to acknowledge the errors and help turn

attention from what's happening in the blogosphere to what's happening in

the atmosphere.

A number of institutions are beginning efforts to improve the quality of

their science and to make their work more transparent. The official British

climate agency is undertaking a complete review of its temperature data

and will make its records and analysis fully public for the first time,

allowing outside scrutiny of methods and conclusions. The U.N. panel on

climate change will accept external oversight of its research practices, also

for the first time. Two universities are investigating the work of top climate

scientists to determine whether they have violated academic standards

and undermined faith in science. The National Academy of Sciences is

preparing to publish a nontechnical paper outlining what is known and not

known about changes to the global climate. And a vigorous debate is

under way among climate scientists on how to make their work more

transparent and regain public confidence.

 

Broader mistrust

Ralph J. Cicerone, president of the National Academy of Sciences, the most

prestigious scientific body in the United States, said that there was a

danger that the distrust of climate science could mushroom into doubts

about scientific inquiry more broadly. He said that scientists must do a

better job of policing themselves and trying to be heard over the loudest

voices on cable news, talk radio and the Internet.

The battle is asymmetric, in the sense that scientists feel compelled to

support their findings with careful observation and replicable analysis,

while their critics are free to make sweeping statements condemning their

work as fraudulent. Under hostile scrutiny No scientific body is under more hostile scrutiny than the U.N. Intergovernmental Panel on Climate Change, which compiles the climate research of hundreds of scientists around the globe into periodic reports

intended to be the definitive statement of the science and a guide for

policy makers. The IPCC has announced that it was asking for the creation

of an independent panel to review its research procedures to try to

eliminate bias and errors from future reports.

Scientists must continually earn the public's trust or we risk descending

into a new Dark Age where ideology trumps reason. But some scientists

said that responding to climate change sceptics was a fool's errand.

Climate scientists are paid to do climate science.