Thangam Thennarasu for 50% share in central tax devolution

Chennai: State Finance Minister Thangam Thennarasu alleged that Tamil Nadu had been consistently penalized by successive finance commissions for its better performance and that its share in devolution had been reduced from 7.931 per cent during the 9th Finance Commission to a mere 4.079 per cent in the 15th commission.

Speaking at the one-day conclave of State finance ministers on the 16th finance commission at Thiruvananthapuram on Thursday, Thennarasu said the Indian polity had an inherent imbalance in the distribution of powers and responsibilities between the Union and the States.

‘While States are entrusted with the majority of responsibilities related to the development of society and the delivery of public services including education, health, agriculture, social welfare, the Union retains the majority of the powers of revenue generation,’ he pointed out.

I would like to sincerely appreciate the Government of Kerala for organizing this conclave of similarly placed States to exchange their views on the 16th Finance Commission. This platform affords an excellent opportunity for all the participating states to voice our shared concerns.

Despite successive finance commissions trying to increase the distribution of net proceeds between Centre and States, it had not happened, he said. While the 15th commission recommended 41% evolution, the effective devolution was only 31.42% of the gross tax revenue in the first four years of the award.

While on one hand, the effective devolution was less due to imposition of cess and surcharges, on the other, the counterpart funding of the State Governments in centrally sponsored schemes had been increased due to change in the sharing pattern, which was a double blow to the States that had reduced their fiscal space for existing and new state schemes for sectors mandated under the Constitution, he said.

‘It is imperative that States collectively advocate for a 50% share in the central tax devolution. We must urge the Commission to ensure that reliance on discretionary grants is reduced and that predictable and objective resource transfers are increased,’ he said.

The Commission must devise a mechanism to restrict the use of cess and surcharges and recommend appropriate measures to protect the interests of States, he said, adding that in the experience of Tamil Nadu, the continuous reduction had caused a loss of Rs.3.57 lakh crore to the State, which was equal to 43 per cent of its outstanding debt.

‘This reduction has not only put a crumbling burden on the State’s finances, but also reflects the lost opportunity for the State to achieve its full potential,’ he said and demanded a balance between equity and efficiency when deciding the inter-se share of States.

‘However, an excessive emphasis on redistribution can not only skew incentives in favor of non-performance, but also deprive fast growing regions of critical development resources. When the growth of fast-growing regions is constrained by inadequate resources, the whole nation, including the potential beneficiaries of redistribution, suffers,’ the Minister said.

Pointing out that redistribution to poorer states, which has been adopted by every Finance Commission, has not helped achieve the desired levels of development in poorer States, he urged the Commission to rethink its approach and adopt a framework that incentivizes performance and fosters an environment where all States can thrive, rather than constraining the progress of those leading the way.