As the 16th Finance Commission, headed by Arvind Panagariya, is in the process of interacting with various states governments, a group of state finance ministers on Thursday made a strong pitch for a hike in the states’ share in divisible pool of taxes, and incentives for states that perform better on various parameters, including in pursuing the sustainable development goals. In a conclave hosted by the Kerala government in Thiruvananthapuram, finance ministers Punjab, Tamil Nadu, Karnataka, Punjab and Telangana stressed the need to correct the imbalance and asymmetries in the disbursal of financial resources by the Centre.
Inaugurating the event, Kerala chief minister Pinarayi Vijayan underlined the need to forge a common strategy among states against what he called the “the rise in cess and surcharges” which shrink the divisible tax pool. “The 16th Finance Commission has the task of delicately balancing the interests of states which have a low per capita income and larger share of population, and others, which have achieved the aims of the National Population Policy, 1976,” Vijayan said.
Deputy chief minister of Telangana, Mallu Bhatti Vikramarka noted that the decline in the share of “performing states” in central transfers could stymie development and undermine efficiency of governance. It should be incumbent on the Cenre to reward the states for better performance, he added.
Punjab finance minister Harpal Singh Cheema highlighted that there existed a widening gap between the spending needs on social and development programems being taken up the states, and their access to resources. If this is not addressed, he said, an unsustainable situation would be created. He added Punjab, which has a large share of agriculture in the gross state domestic product, is witnessing a slump in own tax revenues as compared to the the pre-Goods and Services Tax regime, after the end of the five year compensation period..
Thangam Thenarasu, Tamil Nadu finance minister, said while expenditure obligations on key areas like education, health and and agriculture are largely with the states, the Centre retains most of the revenue sharing powers, precipitating financial crisis for states.
Kerala Finance Minister K N Balagopal said the two main objectives of the conclave were to “draw the attention of the nation to the worsening imbalances in the fiscal system of the country” and “have broad-based consultation on the state’s memorandum to be submitted to the 16th Finance Commission”.
The 6th FC is expected to submit its report by October 31, 2025.