Bhatti proposes increasing share of States in central taxes to 50 per cent

Speaking at the 16th Finance Commission meeting convened here on Tuesday, he said over the years, cesses and surcharges that were not shared with States have increased, leaving States with a smaller share of total gross tax revenue.

Increasing the vertical devolution will give States the fiscal space they need to strengthen welfare programs, address infrastructure gaps, and prioritize local development. This is not just a demand for Telangana but for all States, ensuring a more cooperative federal structure that will benefit the nation as a whole.

“I would also like to emphasize that Telangana is a unique State. For historical reasons there has been unequal growth. While the per capita income may be high, there is a large gap in wealth and income distribution. It is due to such inequities that the region has seen statehood agitations in the past,” he explained.

Even after the formation of the State, progress in the area of addressing the disparities has been rather slow. To address these issues, the State is required to spend considerable money on infrastructure and on welfare.

If a formula that reduces devolution to a State like Telangana due to itsper capita income is adopted, it will severely handicap the State in taking measures for reduction of disparities. “In light of this, we strongly urge the Finance Commission to reconsider the use of per capita income distance as the primary indicator in determining horizontal devolution. Measuring prosperity and well-being solely by per capita income would deny Telangana the resources needed to address the inequities that exist within the State,” he said.

“We propose that the weightage accorded to income distance be reduced drastically. In its place, we suggest that the formula for horizontal devolution be modified to add at least a 50 per cent weightage to GSDP contribution. Focussing on contribution to the nation’s GDP would directly incentivise States into catalysing value creation,” Bhatti said.

A greater weight on GSDP would incentivize states to adopt reforms that improve productivity, attract investment, and create jobs, ultimately contributing to the national economy. This approach would not only make States more competitive but also help reduce regional disparities, encouraging more balanced growth across the country.

“While this may seem like a significant departure from established practice, we believe it aligns with India's goal of becoming a $5 trillion economy by 2027-28 and a $30 trillion economy by 2047,” he said.

Lastly, certain expenditures, often mislabelled as ‘freebies,’ are, in fact, essential welfare programs. Initiatives like Rythu Bharosa, farm loan waivers, and food subsidies are lifelines for vulnerable communities, ensuring economic stability and social security. “We urge the Commission to recognize these programs as necessary investments in the welfare of our people.

“Before presenting the State specific demands, I would like to raise an important issue that affects all States - Centrally Sponsored Schemes (CSS). While we believe that there can be a case for CSS in certain contexts, the proliferation of CSS with increasingly large outlays in sectors that belong to the State list restricts our flexibility to discharge our original responsibilities,” he said.

Furthermore, by their very nature, these schemes have homogeneous guidelines. The inherent diversity in a nation like India can often leave well-meaning but broadly-applicable instructions feeling like a straight-jacket restricting freedom at the cutting edge.

In addition, harsh conditions are often imposed on States to even access these schemes which restrict the States’ abilities to deliver at the grassroots. “We respectfully urge the Finance Commission to ensure that States are given the necessary autonomy to tailor CSS programs to their specific development needs,” he added.

According to Bhatti, Telangana is at a critical juncture. While the State has made rapid strides in economic development, it is currently grappling with a debt burden exceeding Rs.6.85 lakh crore, as of the end of the previous financial year. This is the result of significant investments in infrastructure, but a large portion of our resources is now being diverted toward debt servicing.

“We request the Finance Commission’s support in either restructuring this debt or providing additional assistance to help free up resources for further development,” he added.