Karnataka plans bloc against 'skewed' devolution

Bengaluru: The Congress-ruled Karnataka wants to bring "developed" states together for a strong case before the 16th Finance Commission on making devolution of taxes more equitable even as the Siddaramaiah administration is forming a special cell to burnish its own argument.

Karnataka was among the states that lost heavily under the 15th Finance Commission, whose tenure ends in 2025-26.  

The 14th Finance Commission gave Karnataka a share of 4.71% in the divisible pool of taxes. The state's share came down to 3.64% under the 15th Finance Commission. 

The reduction meant a shortfall of Rs 26,140 crore in just the last three years for Karnataka, the state government has claimed. 

The 16th Finance Commission, headed by former Niti Aayog vice-chairman Panagariya, will cover a five-year period starting April 1, 2026.

"We will seek the cooperation of other states. We have to put up a united fight," Chief Minister Siddaramaiah's economic advisor Basavaraj Rayareddi, a senior lawmaker, told DH. He pointed out that states like Kerala, Tamil Nadu and "to some extent West Bengal" suffered losses under devolution. 

"The 16th Finance Commission is very important for Karnataka. We must safeguard the state's interests. Now, there is disparity (in devolution of taxes) between the developed and undeveloped states," Rayareddi said, adding that he would soon start work on the state's argument before the 16th Finance Commission. "A state like Karnataka is the economic engine while northern states are political engines. But fuel is being cut for economic engines to make the political engines run," he argued. 

In March 2018, before demiting office as the CM in his first term, Siddaramaiah batted for the southern states and famously wrote on Facebook: "Historically, the South has been subsidising the North."  

The government is creating a special cell to prepare its pitch for the 16th Finance Commission. This is expected to come up before the Cabinet this Friday, sources said. 

The cell is likely to have economists such as former 14th Finance Commission member M Govinda Rao, retired IAS officer M R Sreenivasa Murthy (he headed the 6th state pay commission) and Narendar Pani from the National Institute of Advanced Studies.

According to sources, Karnataka is likely to stick to its argument that "destination states" must be rewarded for receiving migrants from lesser-developed states.

The government will also seek corrections in income distance, which is the per-capita GSDP of a state compared with that of a state with the highest per-capita GSDP. Karnataka has argued that the 16th Finance Commission should look beyond cities with high per-capita income as other parts are less-developed with lower per-capita income.

Tax share

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A state like Karnataka is the economic engine while northern states are political engines. But fuel is being cut for economic engines to make the political engines run.

Basavaraj Rayareddi CM’s economic advisor