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Indian Express
28-06-2025
- Business
- Indian Express
Devolution dilemma: Centre, states and a way to share the pie better
There is considerable debate surrounding the devolution of funds from the Centre to the states. The states have been advocating for an increase in their share from the current 41 per cent, a matter the Finance Commission is expected to deliberate on and provide recommendations for. There are strong arguments on both sides, which can be examined before suggesting a potential way forward. Let us first consider the perspective of the states. To begin with, states are more closely in touch with citizens while the Centre operates at a much higher level. For better results across different programmes — which may vary from state to state in terms of priority — a higher share of central funds is necessary. Second, while the Centre has the power to levy a wider range of taxes than the states, it is only fair that a higher proportion of these collections be passed on to the states. Third, over the years, the Centre has been garnering substantial resources through surcharges and cesses on various items. For FY26, these are projected to generate around Rs 4 lakh crore — funds that do not enter the divisible pool and thus are not shared with the states. Therefore, as compensation, the states' share in total collections needs to be increased, or alternatively, the surcharges/cesses must be included in the divisible pool. Fourth, states are not in a position to increase non-tax charges, as this can be a barrier to investments, especially in a competitive environment where businesses weigh multiple states before deciding where to do business. Finally, once the divisible pool is enlarged, the 'special category' status for some states can be done away with, given that it tends to tilt the balance of allocation at times. The opposing view also has its merits. First, the divisible pool has already been increased to 41 per cent from 32 per cent by the 14th Finance Commission in 2015. Therefore, there is less reason to increase it further. As the second level in the federal structure, while states are indeed more connected to citizens, there are many centrally-sponsored schemes that are financed from the balance 59 per cent but implemented through the states. Third, higher devolution to states could end up being less prudent, especially given the tendency to announce populist schemes ahead of elections. Although some of these may be justified, a more liberal devolution could increase such practices. Interestingly, the Centre, too, would like to have a larger share of the pie and hence may like the 41 per cent devolution rate to be lowered. The justification is that it undertakes numerous social development and infrastructure projects, which require significant funding. Initiatives such as the free food distribution scheme have also put pressure on the Centre's finances, strengthening the case for retaining a larger proportion of tax revenues. Alongside, there is also a view that the current devolution formula requires some attention. Forty-five per cent of the formula is based on income criteria, ensuring more funds go to less developed states. Another 15 per cent is allocated based on population, linking the need for funds to the size of the state. However, this introduces an ideological dilemma: Nearly 60 per cent of the formula effectively rewards underperformance. Although there is a 12.5 per cent weightage for efforts to control population growth, a moral hazard arises — states may benefit from being less developed and receive more funds from the Centre. While, practically speaking, states rarely underperform intentionally for this benefit (which is marginal at best), from a theoretical standpoint, this is a valid argument. Taking off from this, one can think of a compromise solution on the proportion of devolution. This can be increased by 5 per cent, but it can be made both 'conditional' and 'targeted'. This would be analogous to current grants and can be called a special devolution that would have to be approved by Parliament. In terms of conditions, it can be linked to fiscal performance, using the previous three years' audited data from the CAG as a benchmark. A minimum threshold of reining in the fiscal deficit to less than 3 per cent can be one condition. A second can be a continuous decline in revenue deficit, which can be capped at not more than 1 per cent in the terminal year. The third condition could be a declining debt-to-GDP ratio. These would ensure that all three major fiscal prudence parameters are met and help in long-term fiscal consolidation. Once the conditions are met, specific expenditures can be listed. A detailed analysis of state-wise expenditure across different headings can be undertaken by an independent agency like NITI Aayog. This will identify specific priorities or lacunae in different states that can be addressed through this pool of funds. For instance, if a state is spending less on, say, education, then the additional allocation will be earmarked for projects in this field. There can be a specific allocation for capex projects, including state highways, Metro systems, etc, which will also be aligned with the Centre's allocations on similar projects at the national level. This targeted pool would be allotted funds again based on the formula used for the 41 per cent devolution. Further, the funds that are left over should ideally lapse and not be carried forward, thereby excluding states that do not perform from this additional devolution. As the Centre would know which states have met the criteria before the Union budget is presented, the amount to be transferred could also be revealed at the same time. More likely, the full amount will not be disbursed as all the states would not be meeting the criteria. This balance could be used by the Centre to finance its own expenditures. The writer is chief economist, Bank of Baroda, and author of Corporate Quirks: The Darker Side of the Sun. Views are personal
Time of India
24-06-2025
- Business
- Time of India
Siddaramaiah pushes for growth-oriented tax share model in meeting with Sitharaman
Bengaluru/New Delhi: Chief minister Tuesday urged the Union govt to adopt a more development-focused tax devolution formula under the 16th Finance Commission, pointing out that Karnataka had suffered a massive revenue shortfall of Rs 80,000 crore under the previous award. Tired of too many ads? go ad free now During a meeting with Union finance minister , Siddaramaiah called for a "pro-growth approach" in allocation of central taxes among states and highlighted the adverse impact of the current formula on Karnataka's finances. He pointed out that Karnataka's share in central taxes declined from 4.7 % under the 14th Finance Commission to 3.6% under the 15th Finance Commission, amounting to a 23% reduction in real terms. A release from the CMO said: "The state was also not allocated Rs.11,495 crore special grants. As a result, the state lost a total of Rs.80,000 crore during the award period." Siddaramaiah attributed this decline to the 15th commission's over-reliance on the income-distance criterion, which received 45% weightage. He proposed a realignment of this formula. "The state has requested that the weightage for income-distance should be reduced by 20 percentage points under the 16th Finance Commission and reallocated to fiscal contribution — which is the state's share in national GDP," Siddaramaiah said. He also urged Sitharaman to discontinue revenue deficit grants in its current form. "They are against the principles of fiscal discipline as proposed in the Fiscal Responsibility and Budget Management (FRBM) framework," Siddaramaiah said. "We proposed that the same amount — which was 1.9% of gross Union receipts under the 15th Finance Commission — should be redistributed among all states using the horizontal devolution formula. Tired of too many ads? go ad free now " The CM raised region-specific concerns as well, highlighting developmental challenges of Bengaluru, Kalyana Karnataka and Malnad regions. "A fair and pro-growth devolution will accelerate the state's growth," Siddaramaiah told Sitharaman in the 30-minute meeting. Rejecting suggestions that Karnataka is demanding special treatment, Siddaramaiah said the proposals are aimed at strengthening the federal fabric. "On the contrary," he said, "It will improve overall national resource mobilisation and foster cooperative and competitive federalism." Siddaramaiah urged the Centre to incorporate these suggestions in the memorandum of the 16th Finance Commission. "A growth friendly devolution will ensure that all states are empowered to contribute their best to India's development journey," he said. Earlier on Tuesday, Siddaramaiah met President Droupadi Murmu at Rashtrapati Bhavan to seek assent for seven key bills passed by the state legislature. These bills span education, mineral taxation, procurement reform, and administrative streamlining, and require presidential approval under constitutional provisions. Major bills include the Right of Children to Free and Compulsory Education (Karnataka Amendment) Bill, 2025, and the Karnataka (Mineral Rights and Mineral Bearing Land) Tax Bill, 2024. Others focus on procurement transparency, registration processes, notary reforms, and regulation of religious institutions. These bills touch subjects in the Concurrent List or intersect with central laws, mandating Union govt clearance before implementation.
Time of India
24-06-2025
- Business
- Time of India
Karnataka CM seeks special grant of ₹1.15 lakh crore for Bengaluru infra
Chief Minister Siddaramaiah on Wednesday said the state has sought a special grant of ₹1.15 lakh crore from the Union government to fund the projects in Bengaluru , pitching the need for sustained investments in the country's tech capital to address infrastructure challenges. Speaking to reporters after meeting Union Finance Minister Nirmala Sitharaman in Delhi, Siddaramaiah said he has placed the request, arguing that Bengaluru was a global city and the Centre's funding would help improve the city's civic infrastructure. Recently, Bengaluru's failing infrastructure came into the spotlight during heavy downpours, bringing the city to a standstill with many tech parks submerged and homes inundated with floodwaters. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like 1 sip (before bedtime) cleanses the liver and reduces belly fat Lulutox Beyond Bengaluru, the CM also flagged the need for fairer allocations to underdeveloped regions like Kalyana Karnataka and Malenadu to accelerate balanced growth. 'Our demands are not for special treatment but to foster competitive and cooperative federalism and strengthen India's national resource mobilisation,' he said. This specific demand for grants comes at a time when the Karnataka government has been pushing for an equitable share of central taxes through the 16th Finance Commission . 'Karnataka's share in tax devolution from the Centre dropped from 4.713% under the 14th Finance Commission to 3.647% in the 15th, resulting in an estimated loss of ₹80,000 crore to the state over the award period,' CM Siddaramaiah said in a statement. Live Events He added that the state was also denied special grants of ₹11,495 crore earlier recommended by the Commission. The CM argued that a major reason for the state's reduced allocation has been the weightage given to the income-distance criterion, which received 45% weightage under the 15th Finance Commission. The state has now proposed that this weightage be cut by 20% points, with the same being reallocated to 'fiscal contribution,' referring to the state's share in national GDP. The state has requested the Union government to include these proposals in its formal submission to the 16th Finance Commission.
Time of India
23-06-2025
- Business
- Time of India
Siddaramaiah cites migrant population, to seek Rs 50k crore from Centre for Bengaluru's development
Bengaluru/New Delhi: Chief minister Siddaramaiah will seek a special central grant of Rs 50,000 crore from the central govt for Bengaluru's development, citing the city's crumbling infrastructure and mounting strain caused by a large migrant population. Accompanied by top finance department officials, Siddaramaiah will meet Union finance minister Nirmala Sitharaman in New Delhi Tuesday and submit the state's demands. Siddaramaiah's team argues that despite being a global city and the hub of India's IT and biotechnology industries, Bengaluru has not received adequate central support. Basavaraj Rayareddi, economic adviser to the CM and senior Congress functionary, said nearly 40% of Bengaluru's population comprises "outsiders" — those who have migrated to the city for employment. He said that while this migrant workforce contributes taxes, these revenues are either retained by the Centre or redirected to their home states, leaving Karnataka to bear the cost of public services and infrastructure. Rayareddi said a comprehensive infrastructure push is critical to keeping Bengaluru globally competitive and the demand for Rs 50,000 crore was aimed at addressing pressing urban challenges such as traffic congestion, housing, water supply, and public transport. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Makati: Scholarships You Can Apply For (Start Now) College Scholarship | Google Search Search Now Undo Meanwhile, Siddaramaiah is also likely to raise broader fiscal concerns during the meeting. He is expected to demand restoration of Karnataka's share in central taxes to 4.1%, as recommended by the 14th Finance Commission. Under the 15th Finance Commission, the state's share was reduced to 3.6%, a move Siddaramaiah's team claims has disadvantaged the state. He is also likely to request compensation for unmet assurances under previous commissions and will urge the Centre ensure Karnataka is treated fairly by the 16th Finance Commission, which will be in force from April 1, 2026, to March 31, 2031. While there is no official confirmation, sources suggest that Siddaramaiah has also requested an appointment with Prime Minister Narendra Modi. With no major public engagements scheduled from Wednesday onwards, the Siddaramaiah is likely to use the time to meet other Union ministers to press for state priorities. Siddaramaiah will also call on President Droupadi Murmu at Rashtrapati Bhavan following governor Thaawar Chand Gehlot's decision to refer a series of state bills for presidential assent. One key bill proposes a 4% reservation for Muslims in civil contracts valued up to Rs 1 crore, a move that has generated massive political debate. The other bills awaiting approval include a proposed amendment to the Right to Education Act mandating instruction in Kannada or mother tongue from Classes 1 to 5; a bill seeking to tax owners of mineral-rich lands such as those containing bauxite; an amendment enabling e-registration of property transactions; a proposal to introduce reservations in notary appointments for SCs, STs, OBCs, women, and differently-abled individuals; and a controversial amendment to the law governing Hindu religious institutions that seeks to channel revenues from wealthy temples to those with lower incomes.
United News of India
23-06-2025
- Politics
- United News of India
Siddaramaiah slams Centre, seeks fair share for Karnataka
Raichur, June 23 (UNI) Karnataka Chief Minister Siddaramaiah on Monday urged the central government to ensure a fair allocation of funds to the state under the 16th Finance Commission, claiming Karnataka lost nearly Rs 80,000 crore in devolution when compared to the 14th Finance Commission period. Addressing reporters in Raichur, Siddaramaiah accused BJP MPs from the state of "failing" to defend Karnataka's fiscal interests, stating, 'Not a single BJP MP has spoken against this injustice.' The CM specifically targeted Union Minister Pralhad Joshi, accusing him of not securing the release of Rs 11,495 crore recommended as a special grant for Karnataka. 'Despite his closeness to the Prime Minister, he has failed the state. He has no moral right to speak on Karnataka's welfare,' Siddaramaiah charged. Reiterating Karnataka's long-standing demand for a special grant for the development of the Kalyana Karnataka region, Siddaramaiah said the state government already spends Rs 5,000 crore annually for the area's development, and urged the Centre to contribute its share. He also said the state would consider setting up a dedicated ministry for the region to bolster progress. Responding to various issues, the Chief Minister acknowledged Minister HK Patil's suggestion to set up a special court to expedite illegal mining cases and recover pending dues. Recalling his past efforts, Siddaramaiah cited his role in raising the issue in the Assembly and participating in the Bellary padayatra, and noted that the Santosh Hegde Lokayukta report still awaits adequate follow-up. Siddaramaiah also addressed concerns from Congress MLA Raju Kage about development deficits in Kagwad, assuring that he would hold discussions with the legislator and prioritise special grants for constituencies in need. On allegations by MLA Belur Gopalakrishna regarding irregularities in housing schemes, he said the government would seek more information, and added that MLA B.R. Patil is scheduled to meet him on June 25 to discuss matters concerning the Housing Department. Meanwhile, in Bengaluru, Deputy Chief Minister DK Shivakumar told reporters that both the Chief Minister and the Housing Minister would issue a detailed clarification over BR Patil's allegations of corruption in the Rajiv Gandhi Housing Corporation. He said accusations, including those from Gram Panchayat members about bribe-based allotments, would be examined thoroughly. UNI BDN SSP
