CHENNAI: Finance Minister Thangam Thennarasu on Thursday urged the 16th Finance Commission to rethink its approach of redistribution of tax revenue to poorer states and adopt a framework that incentivises performance and fosters an environment where all states could thrive, rather than constraining the progress of those leading the way.
He said the states should collectively advocate for a 50% share in the central tax devolution and urged the 16th Finance Commission to ensure that reliance on discretionary grants is reduced and the share of predictable and objective resource transfers are increased.
“The commission must devise a mechanism to restrict the use of cess and surcharges and recommend appropriate measures to protect the interests of states,” he said.
Speaking at the conclave of finance ministers organised by the Kerala government in Thiruvananthapuram to exchange views on the 16th Finance Commission, Thennarasu said that Tamil Nadu has been consistently penalised by successive finance commissions for its better performance.
Its share in devolution has been reduced from 7.931% during the 9th Finance Commission period to 4.079% in the 15th Finance Commission period. This continuous reduction has caused a loss of Rs 3.57 lakh crore to Tamil Nadu, which is equal to 43% of the state’s outstanding debt. This reduction has not only put a crumbling burden on the state’s finance but also reflects the lost opportunity for the state to achieve its full potential, he said.
Thennarasu said the approach of redistribution to poorer states has been adopted by every finance commission, but even with this approach, the desired levels of development in poorer states have not been achieved. Thennarasu stressed that when deciding the inter se share of states, all commissions should have to make a balance between equity and efficiency.
“However, an excessive emphasis on redistribution can not only skew incentives in favour of non-performance but also deprive fast-growing regions of critical development resources. When the growth of fast-growing regions is constrained by inadequate resources, the whole nation, including the potential beneficiaries of redistribution, suffers,” he added.
Thennarasu also reiterated that on the one hand effective devolution is less due to the imposition of cess and surcharges, and on the other hand, the counterpart funding of the state governments in centrally-sponsored schemes has been increased due to changes in the sharing pattern.
This has resulted in a double blow to the states, which has reduced their fiscal space for existing and new state schemes for sectors mandated under the Constitution.