Karnataka Chief Minister Siddaramaiah has urged Union Finance Minister Nirmala Sitharaman to release special grants and State-specific grants recommended by the 15th Finance Commission and opposed the steepest cut of 23% in devolution of funds.
“The decrease in tax devolution share to Karnataka by the 15th Finance Commission when compared with 14th Finance Commission recommendation, has decreased the total tax devolution to the State by ₹37,011 crore in the past four years, from 202-21 to 2023-24,” Mr. Siddaramaiah noted in his letter.
The 15th Finance Commission has reduced Karnataka’s share in tax devolution to 3.647% of the divisible pool for the term 2020-21 -2025-26 from 4.71% recommended by the 14th Finance Commission.
Income-distance criteria
Karnataka has lost heavily on the income-distance criteria adopted by the commission. The introduction of new methodology for compilation of GSDP has dramatically raised the State’s GSDP in 2011-12 series by over 30% as against an average increase of less than 9% for all States put together. The increase in GSDP at absolute level was similarly reflected in a step up in per capita income affecting the standing of the State. It affected the share of State in Income-distance parameter from 4.2% as per the 14th Finance Commission to 1.1%. “This alone dragged the devolution share of the State from 4.71% awarded by 14th Finance Commission to 3.64% awarded by 15th Finance Commission.”
Even though the IT-related services contribution has increased the GSDP of the State significantly in 2011-12 series, there was no corresponding contribution of these services to the State taxes as exports of IT services are zero rated.
What was recommended
The 15th Finance Commission for 2020-21 has recommended ₹5,495 crore to Karnataka as Special Grants for 2020-21. But the Centre has not considered the commission’s recommendations. In the final report for 2021-26, the commission awarded State’s specific grants of ₹6,000 crore to Karnataka for holistic improvement of water bodies in Bengaluru and for peripheral ring road.
However, no grants have been released to the State so far and “this has been a major setback to the State fiscal position” which is already strained due to severe cut in tax devolution, Mr. Siddaramaiah said.
