Southern states, especially Karnataka and Kerala, are gearing up to corner the union government over “unfair treatment meted out to them” during devolution of taxes and releasing grants.
Karnataka chief minister Siddaramaiah along with his party MLAs and MPs will be protesting at Jantar Mantar in Delhi on Wednesday to “draw the attention of people of the country and the Union Government”.
So what is the tax devolution maths?
The Congress-led Karnataka government argues that in the 14th Finance Commission the state got 4.71% of total taxes, while it has been reduced to 3.64% in the 15th Finance Commission. This reduction of 1.07% has resulted in a 45,000 crore loss to Karnataka’s share over the last four years, it says. If this year’s estimates are taken into account, then this deficit will be Rs 62,098 crore for the five-year period.
The 15th Finance Commission recommended special grants of Rs 5,495 crore to Karnataka in its interim report. Additionally, the final report also recommended Rs 6,000 crore for Bengaluru’s peripheral ring road and the rejuvenation of water bodies. The overall special grant recommended by the 15th Financial Commission totals to Rs 11,495 crore.
The Karnataka government argues that the union finance ministry under Nirmala Sitharaman has refused to honour this recommendation. Thus, according to it, the state has suffered a loss of Rs 73,593 crore because of a reduction in the devolution of funds and special grants given by the 15th Finance Commission not being accepted by the union government.
“Devolution of taxes and grants given to Karnataka was 2.2% of the budget in Financial Year 2017-18 but it has reduced to 1.23% in 2023-24. The overall budget outlay has doubled but funds being given to us have not, it has gone down. This year an estimated 4.3 lakh crore is being collected from Karnataka but only 50,257 crore is being given in return,” argued Karnataka chief minister Siddaramaiah
Refusing to get drawn into a north India vs south India debate, the CM said that he had no issues with the northern states being given a little more. “We are not against north Indian states. They can give a little more to poorer states. They can give more to them. But we can’t be treated unfairly. Rs 1,87,000 crore is the loss to us from 14th Finance Commission to 15th Finance Commission,” he said.
The union finance minister refuted allegations that she had stopped any funds from being given to any state and called it a politically vitiated narrative. “Till six months ago if it was hunky dory, what’s going wrong now? Have you started spending on items on which you were not supposed to spend? I’m not even questioning that, do spend it. But don’t put the blame on me. Don’t blame the Centre,” said Nirmala Sitharaman in Parliament.
Responding to it, Siddaramaiah asked why the Rajya Sabha member from the state was not safeguarding Karnataka’s interest. “This has nothing to do with guarantees. When the interim report of the Finance Commission was submitted to the finance minister, there were no guarantees. Who rejected the special grant of Rs 11,000 crore recommended by the Finance Commission? She promised 5,300 crore for Upper Bhadra in her last budget. Where is it?” asked Siddaramaiah.
Karnataka plans to argue to include cess and surcharge in the devolution pool when the 16th Finance Commission takes up deliberations. Currently, it is not shared with the states. An estimated Rs 5.5 lakh crore is expected to be collected as cess and surcharge by the union government in the present financial year.
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