In a significant gathering in Thiruvananthapuram, Kerala, on Thursday, five Opposition-ruled states came together to advocate for a stronger fiscal federalism. The meeting, which included representatives from Kerala, Tamil Nadu, Karnataka, Telangana, and Punjab, focused on addressing the current issues surrounding the devolution of taxes.

Kerala Chief Minister Pinarayi Vijayan, who inaugurated the conclave, highlighted the growing share of surcharges and cesses in the Union government’s gross tax revenue, now constituting around one-fifth. He argued that this increase has led to a reduction in the divisible pool of taxes and stressed the need for the 16th Finance Commission to address this issue in its recommendations.

Finance Ministers’ Perspectives:

• Telangana Finance Minister Bhatti Vikramarka Mallu criticized the 14th Finance Commission’s adjustment that increased states’ share from 32% to 42%, noting that it only shifted funds from tied to untied grants without expanding fiscal space for states. He emphasized that the Centre’s increased use of cesses and surcharges, which are not shared with states, undermines this perceived increase.
• Karnataka Revenue Minister Krishna Byre Gowda expressed frustration that the 15th Finance Commission overlooked states’ concerns. He argued that Karnataka’s contribution to the national GDP and GST is disproportionately high compared to its population, and warned that political federalism is also at risk if states lose representation in Parliament during future delimitation.
• Tamil Nadu Finance Minister Thangam Thennarasu criticized the Centre for penalizing well-performing states and called for the 16th Finance Commission to address the imbalances and incentives for underperformance in the current tax distribution system.
• Punjab Finance Minister Harpal Singh Cheema highlighted the challenges posed by the GST system, which has limited states’ fiscal autonomy. He urged the Commission to consider the significant revenue losses experienced by agrarian states like Punjab, as well as other states facing similar issues.

Kerala Finance Minister K N Balgopal underscored the need for recognizing the crucial role of state governments in national development and reducing vertical imbalances. He called for a minimum 50% share of states in the divisible pool and a cap on surcharges and cesses at 5%.

The conclave marks a concerted effort by these states to push for fairer fiscal practices and greater autonomy in the face of ongoing financial challenges.