Karnataka Chief Minister Siddaramaiah wrote to Union Finance Minister Nirmala Sitharaman on Saturday, August 19 seeking the release of the special grants recommended by the 15th Finance Commission (FC). The Commission’s report for 2020-21 had recommended Rs 5,495 crore in special grants to the state. But the Union government has not considered the Commission’s recommendation, wrote the CM.
The 15th FC’s final report for 2021-26 also recommended that the state be awarded specific grants of Rs 6,000 crore for “holistic improvement of water bodies of Bengaluru and for Peripheral Ring Road”. In his letter, the Chief Minister noted that the Union government had, in its explanatory memorandum, said that due consideration will be given to the recommendation. However, Siddaramaiah stated that no grants have been released to the state so far, and this has been a “major setback” for the state’s fiscal position.
Karnataka’s demands for the release of special grants comes in the background of reduced tax devolution to the state as per the 15th FC’s recommendation.. The Commission’s tax devolution formula for 2021-26 had fixed Karnataka’s share at 3.647% compared to 4.71% tax devolution share that the 14th FC had recommended. This, the Chief Minister said, decreased the total tax devolution to the state by Rs 37,011 crore in the four years between FY 2020-21 and FY 2023-24.
The 15th FC’s recommendations were based on the criterion of income-distance, which means that states with per capita Gross State Domestic Product (GSDP) furthest from the one with the highest per capita GSDP get a greater share of tax devolution from the Union government.
Additionally, the tax devolution of the southern states was hit by the fact that the 15th FC relied on the 2011 census data to determine the per capita GSDP of states. This is despite the nine FCs before it using the 1971 census to calculate the GSDP. This drew criticism from the southern states, who argued that this penalised them for their effective implementation of population control measures. All southern states, with the exception of Tamil Nadu, faced cuts in their tax devolution share in the 15th FC’s recommendations.