The Indian government has released ₹1.78 trillion to states in October as part of tax devolution, including an advance installment of ₹89,086.50 crore to boost spending during the festive season. This move aims to accelerate capital spending and finance development and welfare initiatives across states. While India’s GDP growth moderated in the April-June quarter, the government anticipates a rebound in subsequent quarters due to increased public spending and a strengthening rural economy.
Karnataka Chief Minister Siddaramaiah has urged the Union government to re-evaluate its tax devolution policy, arguing that states with higher economic performance are being unfairly penalized. He has called for a conclave of eight states to discuss fiscal federalism and advocate for a more balanced approach that rewards growth and performance.
This article argues that the Finance Commission (FC) should prioritize intergenerational fiscal equity by incorporating fiscal indicators into the tax devolution formula. This approach would incentivize States to manage their finances sustainably and ensure that future generations are not burdened with debt. The article highlights the current system’s shortcomings, where high-income States are disproportionately burdened while low-income States rely heavily on Union financial transfers.
Ajay Singh, MLA of Jewargi and chairperson of the Kalyana Karnataka Region Development Board (KKRDB), has denounced the Bharatiya Janata Party (BJP) for its alleged injustice towards southern states in tax devolution. Singh claims that BJP-led governments are denying these states their due share, leading them to approach the Supreme Court for resolution. He also highlights the Union government’s delayed response to drought relief in Karnataka, accusing the BJP of being anti-farmer.
