CHENNAI: The 16th Finance Commission chairperson Arvind Panagariya on Monday appreciated the state government for its efforts to present a well-researched representation before the panel.
Speaking to journalists after consultations with the state government and other stakeholders, Panagariya highlighted that Tamil Nadu has sought significant changes in the criteria for tax devolution. He further said that so far the commission has visited 12 states and Tamil Nadu has presented a well-researched, analytical report and explained its demands and grievances in a well-balanced and convincing manner.
Speaking to reporters about the government’s suggestions, Panagariya said Tamil Nadu has proposed reducing the income distance weightage from 45% to 35%, with adjustments based on purchasing power parity. He further added that so far no other state has raised the issue of income distance and the purchasing power of people.
Highlighting the state’s other recommendations, Panagariya said Tamil Nadu has also recommended increasing the weightage for demographic performance from 15% to 20% and assigning a 10% weightage for urbanisation. Additionally, it has called for introducing a new criterion — state contribution to the national GDP — with a weightage of 15%.
Panagariya further highlighted that Tamil Nadu emphasised the need for facilitating fast-growing states to expand the overall divisible tax pool. “Tamil Nadu has stated that unless fast-growing states are adequately funded, their growth may slow, hampering India’s overall development trajectory. Conversely, if their growth is facilitated, the divisible pool itself will expand, increasing the resources available for distribution,” he explained.
Addressing questions, Panagariya acknowledged that Tamil Nadu’s share in tax devolution has decreased over time due to the widening gap between richer and poorer states. However, he noted the challenges of accommodating diverse demands.
Panagariya added that since the commission has to visit 16 more states in the coming months, it is yet to make any decision on the demands of the states.