Bhatti Calls for Fair Tax Devolution for Southern States

Hyderabad: Deputy Chief Minister Mallu Bhatti Vikramarka on Thursday voiced serious concern over the “discrimination” against southern states in terms of their share in Central taxes, despite their significant contributions to the Indian economy.

Speaking at a conclave of finance ministers from opposition-ruled states, Bhatti Vikramarka emphasised the need for a more equitable financial system and greater fiscal autonomy for the states.

The conclave, which coincided with the 16th Finance Commission’s tour of various states to hear demands and grievances, was inaugurated by Kerala Chief Minister Pinarayi Vijayan in Thiruvananthapuram on Thursday. Finance ministers from Tamil Nadu, Karnataka, Punjab, and Kerala — Thangam Thennarasu, Krishna Byre Gowda, Harpal Singh Cheema, and K.N. Balagopal — were also in attendance.

In his address, Bhatti Vikramarka highlighted the Centre’s increasing financial dominance, which has left states struggling to fund development projects. He pointed out that the 14th Finance Commission’s decision to increase the states’ share in Central taxes from 32 per cent to 42 per cent was misleading, as it only reallocated funds from tied grants to untied ones without any real increase in resources.

Bhatti Vikramarka also expressed frustration over delays in GST compensation, which have caused uncertainty in state budgets, hindering development efforts. He underscored the disproportionate decline in the tax devolution share for southern states — from 21.07 per cent under the 11th Finance Commission to just 15.8 per cent under the 15th Finance Commission — despite the region’s contribution of over 30 per cent to the national GDP.

“The Centre’s growing reliance on cesses and surcharges, which are not shared with the states, now accounts for over 28 per cent of the Centre’s gross tax revenue. This trend reduces the resources available to the states,” Bhatti Vikramarka explained. He further criticised the "permanent temporary" nature of cesses and surcharges, which seem designed to deny states their rightful share of tax revenue.

"The use of 2011 population figures in determining tax devolution penalises states that have successfully controlled their population growth, discouraging good governance and social development,” Bhatti said, calling the trend "unjust."

He also criticised the rigid conditions attached to Centrally Sponsored Schemes (CSS), which force states to divert funds from local priorities. “A ‘one size fits all’ approach does not work in a regionally diverse country like ours,” Bhatti Vikramarka remarked. He highlighted the significant imbalance between CSS grants and Finance Commission grants, with CSS funding rising to `4.80 lakh crore in 2024-25 while Finance Commission grants have dwindled to `1.32 lakh crore.

Looking ahead to the upcoming delimitation exercise, Bhatti warned that using 2011 population data would further reduce southern states' political representation in the Lok Sabha. “States that have prioritised population control and social development will be penalised, while those with higher population growth will gain disproportionate representation,’ he said, urging for reforms that protect Southern states’ political voice.

Bhatti Vikramarka proposed following the American system, where the number of representatives in the House of Representatives has been fixed for over a century, to ensure fairness. He also advocated for Kerala’s interpretation of Article 293, which would grant states more borrowing autonomy, especially when the Centre itself exceeds its fiscal deficit targets.

“Framers of our Constitution never intended centralized financial control,” Bhatti Vikramarka stated. He called for a recalibration of the Centre-state financial relationship, advocating for the states’ share in central taxes to be raised from 41 per cent to 50 per cent, reducing the Centre’s use of cesses and surcharges, and protecting Southern states’ political representation.