Dr.Thomas (Special Correspondent)
1
.My compliments to the M.S.Ramaiah University of Applied Sciences,Fiscal Policy Institute and the Finance Department for organizing today’s National level seminar on the “Fiscal Federalism:Challenges before the Sixteenth Finance Commission”at the most appropriate time when the 16th Finance Commission is constituted.
2.Karnataka must make a strong representation to the 16th Finance Commission to examine the current anomalies in the federal fiscal transfers.It is time for the transfer criteria to place sufficient emphasis on efficiency along with the equity concerns.
3.Karnataka has suffered heavy revenue loss on account of the Finance Commission recommendations in the past which needs to be challenged before the Sixteenth Finance commission.
4.Karnataka’s share in tax devolution got reduced from 4713 per cent under the 14th Finance Commission to 3.647 per cent under the 15th Finance Commission.
5.Karnataka has experienced the biggest cut among the states,a reduction of 1.066 percent.The current approach considers the income distance,as per which, Karnataka loses out due to the lower distance from the highest per capita income state.
6.It is important to consider the fact that high per capita income levels arise mainly from Bangalore urban district at Rs.6,21,131.This approach has deprived Karnataka of adequate resource transfers to address the low per capita income of certain districts.
7. Finance commissions must make necessary adjustments for the intra state per capita income differentials while arriving at the income distance in making the recommendations.
8.It is also ironic that the second highest tax paying state in the country does not get adequate reward for its contribution.We will urge the 16th Finance Commission to increase the weight assigned to tax effort by the 16th Finance Commission to incentivize efficiency and fiscal performance.
9.The state that has a proven track record of sound fiscal performance does not get any incentive for its fiscal efficiency.Karnataka’s macro fiscal performance has been noteworthy with the distinction of being the first state to promulgate the Fiscal Responsibility Act.
The macro fiscal indicators such as fiscal deficit and the revenue deficit have always been within the stipulated limits, barring the post COVID reappearance of revenue deficits.
10. In India state governments have major expenditure responsibilities, very often not backed by commensurate revenue sources.
It is in this context that the resource transfers of the Finance Commissions matter significantly in the effective discharge of state level expenditure responsibilities even while retaining their fiscal autonomy.
11. The state has many challenges in sustaining its economic growth even while ensuring that it is balanced and inclusive.In addition,the state has to cope with the budgetary implications of the centrally sponsored schemes.
12. Furtherance of state’s economic and human development requires significant investments in the human and physical infrastructure. Despite Karnataka’s proven track record of very sound own tax performance,the resources are not adequate to meet the growing challenges and also attain the vision of $1 Trillion GSDP by 2032.
13.Urbanization is placing growing demands on the upkeep of the infrastructure and provision of basic services in the city centers.The problem is compounded by the increased pressure on the city centers on account of growing migration.
14. The cities that are the major growth engines of the state especially that of Bangalore needs further fillip to its infrastructure.
15. As it is very well known Bangalore city’s contribution to the state’s revenue is substantial and it is important to provide the required state support to sustain its growth.
16. The state has been experiencing persistent regional imbalances despite its concerted effort using the Empowered Committee’s assessment.
As per the Economic Survey 2022-23,Bengaluru Urban District’s Percapita Income ranks first with Rs.6,21,131 and last is Kalaburagi with Rs.1,24,998.
17. Imbalances in the human development also are glaring with Bangalore Urban sharing the first position with HDI value of 0.738 and Yadgir,Kalaburagi and Raichur are the districts in the last 3 positions with HDI value 0.538,0.539 and 0.562 respectively.
18.The state’s efforts need to be supplemented with additional resources to bring about balanced regional development.
19.I urge the experts participating in the seminar to deliberate upon the ways and means to argue for an evidence-based balanced approach by the Finance Commissions to achieve equity and incentivize efficiency.
20. I hope that this seminar will throw light upon these issues and give valuable suggestions to make strong representation for Karnataka before 16th Finance Commission to obtain fair tax devolution from the Centre.
21.I wish the seminar every success and once again congratulate Ramaiah University for organizing seminar on such a timely subject.
