Karnataka may seek cap on resource transfer to poorer states

Karnataka’s share in central taxes came down to 3.64% under the 15th Finance Commission from 4.71% under the 14th Finance Commission. This decrease resulted in a loss of Rs 62,098 crore, the Siddaramaiah administration has claimed.

Karnataka is likely to ask the 16th Finance Commission for a cap or limit on the transfer of fiscal resources from richer states to the poorer ones, an argument that cuts right at the heart of the debate surrounding devolution.

The Arvind Panagariya-led 16th Finance Commission is slated to visit Karnataka on August 29. Chief Minister Siddaramaiah will present the state’s memorandum to the Commission.

According to sources, Karnataka will make the argument that efficiency, and not just equity, must get prominence.

Karnataka’s share in central taxes came down to 3.64 per cent under the 15th Finance Commission from 4.71 per cent under the 14th Finance Commission. This decrease resulted in a loss of Rs 62,098 crore, the Siddaramaiah administration has claimed.

“When it comes to transfer of fiscal resources, public service costs and revenue raising capacities vary. That’s why richer states are expected to give a portion of their revenues to poorer states. But we should have limits, because Karnataka loses 58 per cent of what it makes (earns),” said a government source directly involved in the preparation of the state’s memorandum.

“Therefore, we will argue for some caps and say that the state must retain a minimum amount of its resources,” the source said.

Karnataka is expected to argue that poorer states have done little to improve themselves over the years in spite of funding. “These states have not achieved a comparable level of service,” the source said.

The Siddaramaiah administration is also planning to argue that vertical devolution should increase from the current 41 per cent.

“We are mulling hosting a meeting of equally-placed states, not only those from the south,” a senior government functionary said.

The 16th Finance Commission is likely to visit Kerala in December. “Once Karnataka presents its case, we’ll reach out to other states. We can continue lobbying for our demands until the Commission finalises its report,” the functionary explained.

Karnataka will also seek a review of the ‘income distance’ criterion, which is the per-capita GSDP of a state compared with that of a state with the highest per-capita GSDP. The state’s share fell drastically because of this criterion. Karnataka wants the 16th Finance Commission to look beyond metropolises having high per-capita income as other parts of the state are less-developed with lower per-capita income.