“Imbalances in the fiscal architecture of India reached their worst phase with the recommendations of the 15th Finance Commission,” said Kerala Finance Minister KN Balagopal in Thiruvananthapuram on Thursday, September 12. The Minister was speaking at a one-day conclave of finance ministers and finance secretaries from five states, hosted by Kerala. The conclave, organised “with a view to strengthen fiscal federalism,” was inaugurated by Kerala Chief Minister Pinarayi Vijayan.
Taking part in the conclave were Tamil Nadu Finance Minister Thangam Thennarasu, Karnataka Revenue Minister Krishna Byre Gowda, Punjab Finance Minister Sardar Harpal Singh Cheema, Telangana Deputy CM Bhatti Vikramarka Mallu, Kerala Finance Minister KN Balagopal, Leader of the Opposition in the Kerala Legislative Assembly VD Satheesan, senior officials, and experts.
Inaugurating the conclave, CM Vijayan said that the federal polity was facing challenges and many states have been compelled to take legal action to enforce their constitutional rights.
It was designed as a “platform to share the common interests of similarly placed states on a number of issues pertaining to development and centre-state finance.”
The attending states said that the Union government’s current policy was to penalise states that perform well economically and in other criteria by denying them their fair share in the divisible pool of taxes.
In February 2024, after the release of the interim budget, TNM had written about how states that are top contributors to central taxes have consistently received considerably lower returns. The interim budget for 2024-25 granted Karnataka Rs 44,485.49 crore, which is 3.647% of the total divisible pool of central taxes. Uttar Pradesh, on the other hand, was allocated Rs 218,816.84 crore, that is 17.939%.
In fact, this single northern state received more than what all five southern states combined – Andhra Pradesh (Rs 49,364.61 crore, i.e. 4.047%), Kerala (Rs 23,480.81 crore, i.e. 1.925%), Tamil Nadu (Rs 49,754.95 crore, i.e. 4.079%), Telangana (Rs 25,639.84 crore, i.e. 2.102%), and Karnataka—received.
The South Tax Movement, led by Karnataka, Tamil Nadu, and Kerala, had then alleged that the distribution of central taxes incentivised poor performance on indices like population control. This was because the 15th FC’s calculations to determine the percentage share of states in the divisible pool depend solely on the 2011 census data for population. This was in deviation from preceding commissions that used the 1971 census, the last census before population control became national policy.
“The 16th Finance Commission has the task of delicately balancing the interests of the states, which have a low per capita income and a larger share of the population, and others that have achieved the aim of the National Population Policy, 1976,” pointed out CM Vijayan.
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The Kerala CM also reminded the attendees of a similar conclave held earlier. “I would like to recall that a similar conclave was held at the same venue seven years back to take a common stand on certain contestable aspects of the Terms of Reference (ToR) of the 15th Finance Commission,” said the Kerala CM, adding that this resulted in many of the items in the ToR not being considered when the 15th Finance Commission submitted its recommendations.
Another common issue raised by the ministers was the need to increase states’ shares in the divisible pool. Both TN Finance Minister Thangam Thennarasu and Telangana Deputy CM Bhatti Vikramarka Mallu called for the share to be raised to 50% from the 41% recommended by the 15th Finance Commission.
CM Vijayan stated that in the last decade, cess and surcharges have shown a rising trend and now comprise around one-fifth of the gross tax revenue of the Union. Its direct consequence is the shrinkage of the divisible pool of taxes, he said.
“Although the states are provided with 41% of the total divisible pool, what the states actually receive is only around 30% due to the rising share of cess and surcharges,” Kerala Finance Minister Balagopal said.
This issue was raised by every one of the ministers from other states who attended the conclave. Karnataka Revenue Minister Krishna Byre Gowda said that the 16th Finance Commission should cap all cess and surcharges at 5%. “Any cess and surcharge beyond the 5% should be added to the divisible pool,” he said.
Besides the reduction in the size of the divisible pool, the attending states also raised concerns over the Union allocating more tied funds than untied funds. The former can only be used for purposes decided by the Union government.
The conclave also saw ministers from the different states raise concerns over the country’s political federalism. Bhatti Vikramarka said, “The looming threat of delimitation will reduce the political representation of the southern states in the Lok Sabha.”
The inaugural session of the conclave was followed by a closed-door discussion of experts on the issues that are to be highlighted in the state’s memorandum to the 16th Finance Commission.
With inputs from IANS