Telangana pitches for aligning resources in favour of states

Hyderabad: Telangana on Friday pitched for 40 per cent devolution of the central tax revenue to states, making a case for allocation of resources based on the "functional responsibilities" of the Centre and the states under the Constitution.

Besides, the state government said that issues of income inequalities need to be addressed through specific schemes tailored to meet the requirements of backward states and special development packages and not through tax devolution. It also sought an adequate "compensatory mechanism".

Making a presentation before the 14th Finance Commission here, Telangana Chief Minister K Chandrasekhar Rao said, "With focus on inclusive growth, the commitments of states have increased considerably. As most of the sectors touching on the lives of the people fall within the purview of states, there is an imperative to align resources in favour of states."

He added, "I request the Finance Commission to be a trail blazer, ushering in an era of resource transfers based on constitutionally assigned responsibilities. There is another compelling reason for a paradigm shift in resource sharing in favour of states as there has been considerable increase in the non-tax revenues of the Centre from off-shore royalties, sale of spectrum and disinvestment proceeds."

Noting that there has been a reduction in the size of the divisible pool because of the levy of cesses and surcharges by the Centre, Rao said it has neutralised the increases in states share in Central tax revenue recommended by successive Finance Commissions.

"This can easily be accommodated by a marginal reduction of 5 per cent in the Centre's expenditure on state subjects," he said.

"We are of the firm view that population and area represent the needs of a state in terms of provision of public goods and services more than any other indicator. We propose that weights of 25 and 30 percent be assigned to population and area respectively," he added.

"I feel it is more relevant that 2011 population be taken into account for the purpose of tax devolution instead of 1971 population, which is more than 40-year-old," Telangana Chief Minister said.

Lamenting that states were being "penalised" for improving their economic growth and per capita incomes, Rao stressed on the need for substantially reducing weightage assigned to equity parameters.

"Successive Finance Commission have been assigning higher weightage to equity parameters as a result which the share of middle-income states in tax devolution has witnessed a massive erosion.

Better performing states have lost out heavily because of higher weightage to distance of per capita income or its variants," he said.

Favouring introduction of Goods and Services Tax, "provided it is ensured that there is no accentuation of vertical imbalances and compromise of autonomy of states," the CM wanted the Centre to put an adequate "compensatory mechanism" in place.

"As recommended by the Parliamentary Standing Committee, states should be allowed flexibility in deciding the rates of GST within a floor rate and a band.

"Petroleum and liquor may be kept out of the purview of GST," the Chief Minister added.

Fourteenth Finance Commission Chairman Y V Reddy, Commission members, Telangana Finance Minister E Rajender, Chief Secretary Rajiv Sharma and other officials were present.