Thangam Thenarasu highlighted Tamil Nadu’s efforts in enhancing fiscal health and urged for collaborative measures among states to tackle issues such as revenue deficits and fiscal imbalances.
Published Sep 12, 2024 | 5:16 PM ⚊ Updated Sep 12, 2024 | 8:42 PM
Tamil Nadu’s Finance Minister Thangam Thenarasu addresses conclave in Kerala
Kerala government’s one-of-its-kind conclave brought together ministers of several states from across India to discuss the one thing that will matter to everyone – fiscal federalism.
Kerala Chief Minister Pinarayi Vijayan advocated for a substantial increase in the states’ share of taxes, proposing that it be raised to 50 percent of the Union’s net tax proceeds.
This proposal was presented during a high-level conclave with finance ministers from opposition-ruled states, held on 12 September, to address key issues ahead of the 16th Finance Commission’s recommendations.
The conclave included prominent figures such as Telangana’s Deputy Chief Minister and Finance Minister Bhatti Vikramarka Mallu, Karnataka’s Revenue Minister Krishna Byre Gowda, Punjab’s Finance Minister Harpal Singh Cheema, and Tamil Nadu’s Finance Minister Thangam Thenarasu.
Currently, the 15th Finance Commission mandates that 41 percent of central tax revenues be allocated to states. This distribution is based on various criteria including population, demographics, income levels, geographical area, and forest cover.
The aim of the conclave was to prepare a collective stance on how the tax distribution formula could be revised to better address the needs of states.
Speaking at the conclave, Tamil Nadu’s Finance Minister Thangam Thenarasu highlighted Tamil Nadu’s efforts in enhancing fiscal health and urged for collaborative measures among states to tackle issues such as revenue deficits and fiscal imbalances.
He said, “This platform affords an excellent opportunity for all the participating states to voice our shared concerns. As you all know, the Indian politics has an inherent imbalance in the distribution of powers and responsibilities between the union and the states. While the states are interested with the majority of the responsibilities related to the development of the society and delivery of public services…The Union retains the majority of the powers of revenue generation. It is in this context that the successive financial commissions have tried to increase the distribution of net proceeds between the centre and states. However, while 41 percent has been recommended by the 15th finance commission, the effective devolution has been only 31.42 percent of the gross tax revenue in the first 4 years.”
“While on one hand, the effective devolution is less due to imposition of surcharges, on the other, the counterpart funding of the state governments in centrally sponsored schemes has been increased due to change in the sharing pattern. This has resulted in a double blow to the states which has reduced the fiscal space for existing and new state schemes for sectors mandated under the constitution. It is hence imperative that states collectively advocate for a 50 percent share in the centre tax devolution. We must urge the commission to ensure that reliance on discretionary grants is reduced and that predictable and objective resource stances are increased,” he said.
He also added, “In the experience of Tamil Nadu, the state has been consistently penalised by successive finance commissions for its better performance. Its share in devolution has been reduced from 7.931 percent during the 9th finance commission to a mere 4.079 percent in the 15th finance commission. This continuous reduction has caused a loss of Rs.3.5 lakh crores to the state of Tamil Nadu, which is equal to 43 percent of our outstanding debt. This reduction has not only put a crumbling burden on the taste finances but also reflects the lost opportunity for the state to achieve its full potential.”
“An excessive emphasis on redistribution can not only skew incentives in favour of non performance, but also deprive fast growing regions of critical development resources. When the growth of a fast growing region is consigned by inadequate resources, the whole nation – including the potential beneficiaries of redistribution suffers. It is also important to point out that this approach of the redistribution to poorer states has been adopted by every finance commission, but even with this approach the desired level of development in poorer states has not been achieved. It is an indication that the commission must rethink it’s approach and adopt a framework that incentivises performance and fosters an environment where all the states can thrive rather than constricting the progress of this leading the way,” he concluded.
(Edited by Ananya Rao)
