Finance Commission's tax devolution formula sparks mixed reactions from states

THe 16th finance charge’s conclusion to tweak the chemical formula for devolvement of taxes to states received a mixed response on dominicus with some states welcoming the changes that resulted in a higher share for some provinces and others criticising the move to do away with revenue deficit grants and state-specific grants.There was no change in states’ share in central taxes from the 15th FC and it will continue to be 41%.But contribution to India’s GDP was introduced as a new criterion with a weight of 10%. Demographic performance was assigned a lower weightage and will be determined by population growth figures between 1971 and 2011 census, not changes in total fertility rate.As a result, the five biggest losers among big states are Madhya Pradesh, Uttar Pradesh, West Bengal, Bihar, and Odisha. The five biggest gainers are Karnataka, Kerala, Gujarat, Haryana, and Punjab,Kerala finance minister KN Balagopal welcomed the commission’s devolution formula and Madhya Pradesh finance minister Jagdish Deora termed the recommendation as “fair”.Balagopal said the marginal increase in Kerala’s share in the divisible tax pool from 1.92% to 2.38% was welcome.“The increase in Kerala’s share in the tax pool will be good for the state. It is a result of our collective hard work. We had demanded 2.79%. But still the increase will benefit us. Even the finance commission had said that we did very well in submitting all the data and documents. But the downside is that as part of the FC grants, we will not be getting the revenue deficit grant anymore,” Balagopal told reporters in Kollam.Kerala’s share of the divisible pool has steadily declined from 3.88% under the 10th Commission to 1.92% under the 15th Commission. Tamil Nadu chief minister M K Stalin expressed disappointment that state’s demand to increase devolution of funds to 50% from the current 41% was not accepted.“Despite the Commission’s attempt to properly recognise the contribution of states to India’s economic growth, it is regrettable that Tamil Nadu, which has the second largest economy in the country and contributes significantly, has been given a lower percentage of financial allocation than other developed states,” Stalin said.Karnataka chief minister Siddaramaiah said Karnataka contributes 8.7% to the national GDP and ranks first in per-capita tax collection but continues to receive lower allocations.“For disaster relief under the State Disaster Response Fund for 2026–31, it said Maharashtra was allocated ₹31,597 crore and Uttar Pradesh ₹16,342 crore, while Karnataka received ₹5,135 crore. In grants to local bodies over five years, Karnataka received ₹37,372 crore, compared with ₹1.16 lakh crore for Uttar Pradesh and ₹79,620 crore for Maharashtra,” he said in a statement.Himachal Pradesh chief minister Sukhvinder Singh Sukhu said the recommendations marked a “black day” for the state as revenue deficit grants were stopped.“This will result in a loss of ₹40,000 crore for Himachal Pradesh,” said Sukhu. Under the 15th Finance Commission, Himachal Pradesh had received assistance of ₹35 000-40,000 crore.Madhya Pradesh finance minister Jagdish Deora said, “By retaining the state share at 41% of tax revenues, the pace of development across the states will be sustained ensuring continuity in growth and progress.”Haryana chief minister, Nayab Singh Saini said, “Haryana, which makes a significant contribution to central taxes, will receive stronger and more stable financial support through this. This amount will be utilised in education, health, rural development, roads and other infrastructure projects.”Uttar Pradesh finance minister Suresh Khanna said, “There will be no major impact but yes the share of central funds will be 17.6% instead of earlier 17.9%. But the fact is Uttar Pradesh is a revenue surplus state and government has decided to help more the weak states or those in need. The ratio is also indicator that UP is developing.”Rajasthan finance minister, Divya Kumari, did not respond to questions.“We had high expectations from the commission, but its recommendations have fallen short. Being a border state, we had sought a special package for border areas, particularly for the development of an industrial corridor, which has not been provided...We were expecting much more from the commission,” said Punjab finance Minister Harpal Singh Cheema.(With inputs from state bureaus)