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15th Financial Commission: Centre's Tax Allocation Disparity Unites South Against the North

Over the last week, the rumblings from South India have been growing over the devolution of taxes from the Centre.

Deepa Balakrishnan, Sakshi Khanna, Poornima Muralideepab18

Updated:March 23, 2018, 3:28 PM IST
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15th Financial Commission: Centre's Tax Allocation Disparity Unites South Against the North
File photos of Karnataka CM Siddaramaiah and UP CM Yogi Adityanath.
Bengaluru: "We need to resist," Karnataka Chief Minister Siddaramaiah tweeted out to all chief ministers of South Indian states early on Friday morning.

Over the last week, the rumblings from South India have been growing over the devolution of taxes from the Centre.

It started with Andhra Pradesh CM Chandrababu Naidu telling his state assembly that tax revenues from the South are getting diverted to the North. “There is nothing called Centre’s or State’s money. It is the taxpayer’s money. Southern states contribute the maximum tax revenue to the Centre but they are diverting the money to the development of the North,” said Naidu.

The main bone of contention is the Centre’s latest proposal where the 15th Finance Commission, formed in November last year and tasked with deciding how taxes are to be shared/devolved between different states, has been told to use the 2011 Census data as its parameter. “This new framework is being used instead of the 1971 Census used so far… this will further affect the interests of the South,” Siddaramaiah said.

Between 1971 and 2011, the population growth in the South has been controlled to a large extent, while the numbers in the North have been growing unabated. Therefore, if population is the means of deciding redistribution of the revenues, southern states will end up getting a raw deal — merely because they have progressed so well on different factors, including that of population control measures.

Siddaramaiah told News18 that Karnataka contributes nearly 10 percent of the overall Central revenue, yet the state gets back only five percent of the redistributed funds. “I endorse the opinion of the Andhra CM. Karnataka contributes 9.56 percent to the overall Centre in revenues but it gets back just around 4.5 percent,” he said, adding that the South was being wronged.

The anger against the Centre has been growing for another reason. Nearly every time a central BJP leader, including Prime Minister Modi or BJP president Amit Shah, visits a southern state, they talk about the ‘largesse’ with which they have allocated money to the south. They then go on to claim that the money has been misused or under-utilised because of incompetent state governments.

In Karnataka, the BJP leaders have addressed rallies asking the Congress “give accounts” of the funds. While the Siddaramaiah-led government has rebutted this with statistics and accounts, other southern states have joined in the chorus to hit back at the BJP for making it sound like they were doing a favour by allocating the funds.

No wonder then that Telangana CM K Chandrashekar Rao remarked wryly last week, “The Centre earned Rs 50,013 crore in taxes from us the last fiscal ending 2017. It gave back only Rs 24,561 under all their schemes. Amit Shah should know that it is Telangana which gave Rs 25,452 to the Centre.”

Terming the Centre’s move as the “incorrect spirit of federalism”, Kerala finance minister TM Thomas Isaac said, “The move is not in the right spirit of federalism. It will further weaken the federal structure of India and worsen the Centre-State fiscal imbalance. The southern states have followed the national family planning policy, yet our share is going down. Kerala is going to significantly lose out. We are being penalised for successfully implementing a national programme.”

DMK’s MK Stalin wrote to ten chief ministers from around the country against the terms of reference that the 15th Finance Commission will use, specifically, the issue of basing its tax-share on the 2011 Census. He even went so far as to say that he may even support a ‘Dravida Naadu (Separate State of the South)’.

DMK’s spokesperson Manu Sundaram says it’s not as if the South is against the development of the northern states. “The five southern states and Pondicherry contribute a great deal to the central revenue. We do realise we have a responsibility to help other states which are not doing well. What the southern states are demanding is a greater say in how these taxes are spent and given back to us. The allocation definition and ratios have changed much to the disadvantage of the South,” he told News18.

WHAT COULD THIS REVENUE BE USED FOR?

Last April, when farmers in Tamil Nadu witnessed a drought that broke 100-year records, farmers’ association had angrily posed this question to the Centre – why is it that the UP government, which is utilising central funds, announcing farm loan waivers, while the TN government cannot do the same?

Farmers felt that if there was even a two to five percent increase in the Centre’s allocation of funds, the loans could have been at least been waived partially. Tamil Nadu cross-subsidising UP farmers at the cost of their own farmers committing suicide was not something that pleased them.

Siddaramaiah has said last week that historically the South has been subsidising the North but the population control efforts that have succeeded in the region should not be held against them.

“Six states contribute more taxes and get less back. For every rupee of tax contributed by UP, the state receives Rs 1.79. In the same place, for every rupee Karnataka contributes, it only receives 0.47 paise. While I recognise the need for correcting regional imbalances, where is the reward for development? For how long can we keep incentivising population growth (which seems to be indicated by the greater allocation to north)?” he asked.

Chairperson of the Centre for Public Policy at the Indian Institute of Management, Bangalore, Prof MV Rajeev Gowda, who is also Congress MP from Karnataka, feels that the 15th Finance Commission has an opportunity to address all issues where the states are feeling they are getting a raw deal. There are formulas to be worked out to correct such balances, and the Commission must pay heed to the southern concern.

“Andhra Pradesh and Telangana have been growing rapidly. The imbalance has been present long before that. I am sure an appropriate solution can be worked out and the fact that these southern states are making this demand, it's a timely reminder that resource allocation need to be examined as a priority,” Prof Gowda told News18.

The chorus has only been growing louder with every passing week. Almost every day, there is a disgruntlement expressed from one or the other of the southern states that their concern are not being heard.

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| Edited by: Aditya Nair
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