New Delhi, Feb 3 (PTI) – Finance Minister Nirmala Sitharaman has advised southern states to present their concerns about tax devolution to the 16th Finance Commission, as the central government does not determine the formula for fund distribution.
Responding to the grievances of southern states over what they perceive as an "unfair" allocation of tax revenues, Sitharaman emphasized that the devolution process is based on the recommendations of the Finance Commission. She encouraged these states to engage directly with the commission if they believe the parameters need revision.
"It is for the states to engage with the Finance Commission to express their concerns about the parameters based on which the tax devolution principles are laid down by them. If they think they have experienced a distinctly different paradigm over the decade, they should highlight these issues to the Finance Commission," Sitharaman said in an interview with PTI.
The population factor plays a significant role in revenue allocation. Southern states, which have successfully controlled population growth, feel disadvantaged compared to northern states with higher population expansion. Their share of the tax devolution has declined over the years, from 18.62% in 2014-15 to 15.8% during 2021-22 to 2024-25.
The Finance Commission, which recommends revenue-sharing formulas for five-year periods, has undergone several revisions. The 15th Finance Commission, for instance, used the 2011 census instead of the 1971 census, leading to shifts in fund allocations. The newly formed 16th Finance Commission, led by Arvind Panagariya, is expected to submit its recommendations by October 31, 2025, covering a five-year award period.
Sitharaman reiterated that the central government adheres to the Finance Commission's recommendations and does not interfere in the allocation process. When asked about calls from certain quarters encouraging residents to have more children as a countermeasure, she refrained from commenting, stating that such viewpoints should be addressed directly to the commission.
With the ongoing debate, the southern states now face the challenge of making a compelling case before the Finance Commission to secure a fairer share of national tax revenues.