Hyderabad, February 26 Economist Montek Singh Ahluwalia has opined that state governments can tax large agricultural farms that are diversifying and generating high income levels, to strengthen their finances.
Speaking at a conference on the 16th Finance Commission report on Wednesday, the former Deputy Chairman of the Planning Commission said that the revenue generated from taxing diversified agriculture can be retained entirely by the states and need not be shared with the Centre.
"The reality is that the Centre cannot tax all agriculture, and only the states can do so. Is the assumption that agriculture must forever remain exempt from income tax, regardless of the size of the holding? It is very difficult to defend that," he said.
He added, "If you have holdings of modest size that are diversifying, they can certainly generate reasonably high income levels and fall under the income tax category. That tax would go 100 per cent to the states. It would not be taken away by the Centre."
Ahluwalia further said that nothing in the Constitution prevents a state government from devolving resources downward if it chooses, though pressure is often directed at the central government.
He added that if a state chief minister decides, as a political decision, to devolve and decentralise funds to the third tier of government to achieve global standards, they do not need the Centre's permission.
The economist also noted that human capital—covering child health, maternal health, education, and related areas—is linked more to lower levels of government rather than national-level direction in most countries.
He highlighted asymmetries across Indian states, pointing out that southern states have achieved substantial reductions in population growth due to markedly lower fertility rates.
