Kerala to unify states against Centre, to host a pan-India fiscal conclave

Kerala government will organise a Fiscal Conclave of states on September 12 in Thiruvananthapuram as part of efforts to firm up a unified position on centre-state relations and tax devolution.

The Conclave is expected to throw up data and models that could be used to convince the 16th Finance Commission of the discrimination faced by performing states like Kerala. The 16th FC, led by Aravind Panagariya, first vice-chairman of the Centre’s think-tank NITI Aayog, is expected to visit Kerala in December. The Conclave, therefore, is also a preparatory exercise, an attempt to draw up persuasive arguments to be placed before the 16th FC members.

“The Commission will study the memoranda submitted by the states and, keeping in view the overall fiscal condition of the country, arrive at a tax devolution formula. This time we want the share of states to improve,” finance minister K N Balagopal said here on Thursday while announcing Kerala’s decision to host the Fiscal Conclave.

Four states – Punjab, Telangana, Tamil Nadu and Karnataka – have confirmed participation. Three of these states will be represented by their finance ministers; Tamil Nadu – Thangam Thennarasu, Punjab – Harpal Singh Cheema, Telengana – Bhatti Vikramarka Mallu (who is also the state’s Deputy Chief Minister). Karnataka will be represented by its revenue minister Krishna Byre Gowda; Chief Minister Siddaramaiah is the state’s finance minister. The finance secretaries of all these states will also participate.

The Conclave will be inaugurated by Chief Minister Pinarayi Vijayan. Opposition leader V D Satheesan will also attend.

The finance minister said the Conclave would primarily dwell on two issues: Centre-State relations and fiscal devolution to states. He said after the 10th FC gave its award, Kerala had received 3.8% from the divisible. “After the 15th FC, it has halved to 1.92%. If we had received Rs 48,000 crore from the central pool after the 10th FC, the devolution has dwindled to Rs 24,000 crore after the 15th FC,” he said. ‘Nonetheless, there are many states in the country where the 10th FC share has either been sustained or even improved upon,” the finance minister added.

Here are some of the tax devolution realities that will be taken up in an elaborate manner at the September 12 Conclave.

One, 62.4% of the total public expenditure in the country falls upon states. However, states receive only 37.3%% of the total revenue and the centre, which is called upon to spend relatively less, pockets nearly 63% of the total revenue.

Two, the centre is increasing the collection of cesses and surcharges; levies that the Centre is not legally bound to share with states. In 2011-12, the share of cesses and surcharges in the centre’s revenue was just 9.4%. In 2022-23, it swelled to 22.8%. Consequently, states are denied of a large chunk of money.

Three, the 15th FC had asked the Centre to devolve 41% of the revenue to the states. Reality is, the states receive just 29.6% of the divisible pool. This imbalance has occurred mostly on account of the growing share of cesses and surcharges in the Centre’s revenue. “Though cesses and surcharges are collected from states, the Centre is under no obligation to share it with states,” Balagopal said.

Four, nearly 80% of Kerala’s revenue is made up of its own collections. The Centre’s contribution is just over 20%. However, the situation for the whole country is diametrically opposite. “The national average for the centre’s share in a state’s tax revenue is 65%. Meaning 65% of the tax needs of most states in India are met by the Centre.

Five, the revenue deficit grant that the FC has recommended as a way to compensate deprived states is too inadequate. It has to be sustained.