Karnataka CM Siddaramaiah advocates growth-oriented tax devolution strategy

Karnataka Chief Minister Siddaramaiah on Tuesday met Union Finance Minister Nirmala Sitharaman to seek the Centre's support for a pro-growth approach in tax devolution among states by the 16th Finance Commission.

During the meeting, Siddaramaiah briefed Sitharaman on Karnataka's significant losses under the 15th Finance Commission award, an official statement said.

The state's share in tax devolution declined from 4.713 per cent to 3.647 per cent -- a reduction of over 23 per cent. Karnataka was also denied Rs 11,495 crore in special grants, resulting in a total loss of Rs 80,000 crore during the award period.

The chief minister attributed this decline primarily to the over-reliance on the income-distance criterion, which received 45 per cent weightage under the 15th Finance Commission.

Karnataka has requested the 16th Finance Commission to reduce the weightage for income-distance by 20 percentage points and reallocate it to fiscal contribution -- the state's share in national GDP.

The state has also proposed discontinuing Revenue Deficit Grants in their current format, arguing they contradict fiscal discipline principles outlined in the FRBM framework. Instead, Karnataka suggested redistributing the same amount -- 1.92 per cent of Gross Union Receipts under the 15th Finance Commission -- among all states using the horizontal devolution formula.

Siddaramaiah highlighted the developmental challenges facing Bengaluru, Kalyana Karnataka and Malenadu regions, emphasising that fair and pro-growth devolution would accelerate the state's growth trajectory.

The chief minister clarified that Karnataka's proposals were not a request for special treatment but would improve overall national resource mobilisation and foster cooperative and competitive federalism.

The meeting concluded with Siddaramaiah requesting the finance minister to include these proposals in the Union government's memorandum to the 16th Finance Commission, arguing that growth-friendly devolution would empower all states to contribute effectively to India's development journey.

The Finance Commission gives suggestions on financial relationship between the Centre and states.

The 16th Finance Commission, set up in December 2023 under the chairmanship of Arvind Panagariya, is expected to give its recommendations by October 31, 2025, which will be applicable for a five-year period beginning April 1, 2026.

The 15th Finance Commission headed by N K Singh had suggested that states be given 41 per cent of the divisible tax pool of the Centre for a five-year period from April 2021 to March 2026.