​A fair share: on divisible pool of tax collections

The Sixteenth Finance Commission (SFC), whose recommendations on financial devolution will be valid from April 1, 2026, faces a piquant situation. Its chairman Arvind Panagariya had noted last week that 22 out of 28 States, including many ruled by the Bharatiya Janata Party (BJP), had asked for a larger share of the divisible pool of tax collections, from 41% to 50% — a legitimate demand. The Union government has effectively shrunk the divisible pool by disproportionately increasing its revenue through non-shareable cesses and surcharges, whose share of the Centre's gross tax revenue soared from 12.8% between 2015-16 to 2019-20 (pre-pandemic years) to 18.5% between 2020-21 and 2023-24 (Budget expenditure). Thus, the effective share of States in the Centre's gross tax revenues averaged close to 31% in the 2020-21 to 2023-24 period — it was 35% in the previous corresponding period. Compounding this is the post-GST reality, where limited avenues for States to raise their revenue, make them critically dependent on central transfers. While GST collections have been fairly good in recent years, this has still not addressed the issue of the reduced avenues for States to increase their revenue. Further, the existing formula for horizontal devolution, with a heavy weightage given to population and income distance, is seen by economically progressive States (the South), as a penalty for performance and responsible governance.
Keeping the status quo would go against the grain and the idea of cooperative federalism that the BJP-led government has emphasised. Mr. Panagariya also remarked that a sudden nine-point jump to 50% would '[upset] too many carts', indicating that the Centre would be loath to lessen its share because of rising expenditure on defence and other capital-intensive projects. This means that the Finance Commission would be less inclined to engage with States' demands, also explaining why it might keep the devolution share unchanged at 41%. Yet, doing so would be a missed opportunity to forge a new federal compact. A modest increase in the vertical devolution, meeting States' demands half-way, would be a welcome signal. The Finance Commission must also recommend a mechanism that will rein in the arbitrary use of cesses and surcharges, maybe even capping them at a fixed percentage of the gross tax revenue of the Centre and including any surplus collection in the divisible pool, as some have suggested. It must fine-tune the horizontal distribution criteria to create a more equitable balance between a State's needs, its area, and its performance. Crafting a formula that is fiscally prudent and one that strengthens the federal structure at its roots, the States, is imperative.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Hindustan Times

34 minutes ago

• Hindustan Times

Israel Iran war LIVE: US issues 'worldwide caution' alert for Americans; UNSC holds emergency meet

Israel Iran war LIVE updates: Members of the United Nations Security Council held an emergency meeting after US stuck three Iranian nuclear sites amid the ongoing conflict between Iran and Israel. Israel Iran war conflict LIVE updates: The US has entered the Iran-Israel conflict on Sunday after it carried out 'Operation Midnight Hammer,' targeting three Iranian nuclear sites - Fordow, Natanz and Isfahan. After the US strikes, Iran stated it "reserves all options" to defend itself after the US strikes. Tehran also called for an emergency meeting of the UN Security Council. ...Read More As the world waits for Iran's response to the US attack, Tehran and Tel Aviv continued to exchange fire and attacks. Iran launched a series of missile attacks against Israel in response to America's attack, injuring around 23 people. In retaliation, Israel also launched a series of airstrikes against Iran and targeted military units, as per the IDF. Follow all the updates here: June 23, 2025 5:45 AM IST In view of the tensions in the Middle East following the US' strikes against Iran, the US state department has issued a 'worldwide caution' alert for Americans across. "The Department of State advises U.S. citizens worldwide to exercise increased caution. Please read carefully our Travel Advisory, country information, and any recent security alerts when planning travel,' read the statement issued by the Trump-led department. June 23, 2025 5:36 AM IST Iran israel war news: The US entered the Iran-Israel conflict on Sunday after it carried out 'Operation Midnight Hammer,' targeting three Iranian nuclear sites - Fordow, Natanz and Isfahan. After the US strikes, Iran stated it "reserves all options" to defend itself after the US strikes. Tehran also called for an emergency meeting of the UN Security Council In response to the US strikes, Iran launched a series of missile attacks against Israel, injuring around 23 people. Israel also retaliated with airstrikes against Iran and targeted military units, as per the IDF.

Time of India

an hour ago

• Time of India

Oppn unites against govt's move to appoint CS as devp board chief

1 2 Chandigarh: Reacting sharply to the Punjab council of ministers' nod on Saturday to appoint the chief secretary as the chairperson of all urban development authorities, opposition parties in Punjab, Congress, Shiromani Akali Dal (SAD), and Bharatiya Janata Party (BJP) hit out at the AAP-led govt in the state, strongly condemning the move. Leader of the opposition in Punjab assembly Partap Singh Bajwa said chief minister Bhagwant Mann had "mortgaged Punjab's authority to Delhi's whims". In a post on X, the Congress leader said chief secretaries "take orders from the Punjab Development Commission controlled by Delhiwalas, reducing the elected chief minister of Punjab to a mere puppet". "This is a de facto coup of Punjab's democratic mandate," he said. Congress MLA from Bholath and chairman of the All India Kisan Congress, Sukhpal Singh Khaira, said the decision "effectively sidelines the elected chief minister and hands over critical governance functions to a bureaucrat". Khaira, in a statement, mentioned: "For the first time in 75 years of India's Independence, an elected leader, chief minister Bhagwant Mann, was replaced by a bureaucrat in such a vital role." Referring to Punjab finance minister Harpal Singh Cheema's statement that the move was necessitated due to the "busy schedule" of the CM, Khaira said it was a "flimsy excuse to mask Kejriwal's growing control over Punjab's governance". "This is not about schedules; this is about power. Kejriwal's takeover of Punjab is now complete, with Mann's authority systematically dismantled," he said. Khaira vowed to take the issue to the assembly, and if necessary, to the courts. "Punjab deserves transparent, accountable, and democratic governance, and we will not rest until that is restored," he said. SAD president Sukhbir Singh Badal, in a post on X, said by appointing the chief secretary as the chairman of all the urban planning and development authorities in Punjab, including PUDA, GMADA, GLADA, JDA, BDA, ADA, PDA, and others, CM Mann's "meek and unabashed surrender" to Arvind Kejriwal "is now complete". "He (Bhagwant Mann) has handed over control of Punjab's lands and development funds to his Delhi boss through a bureaucrat, who is a close aide of Kejriwal," Badal said. He said the move was "designed to hand over Punjab's entire wealth to looters, as it comes on the eve of the AAP govt's plan to acquire thousands of acres of Punjab's land, including 24,000 acres in Ludhiana alone". "This move is also final proof that Punjab is now being directly controlled by non-Punjabis, and even the pretence of ruling through Bhagwant Mann has ended. It is common knowledge that Punjab bureaucrats report directly to Kejriwal and his non-Punjabi associates," Sukhbir said. Punjab BJP spokesperson Pritpal Singh Baliawal said Mann had now officially handed over all development bodies to the chief secretary. "First, the Punjab Development Commission was snatched away from the CM and handed to the chief secretary and he further handed it over to the AAP Delhi nominees! Now, even Punjab's development authorities have been taken away from the CM and given to the chief secretary," Baliawal posted on X. "They've been installed to drain Punjab's resources for Kejriwal's empire in Delhi. The next step clearly seems to be putting these outsiders in control of the development authorities as well," Baliawal said while pointing out the AAP govt's earlier move of handing over of the Development Commission to the "outsiders with absolutely no roots in Punjab". Punjab Congress Committee president Amrinder Singh Raja Warring said AAP had been blatantly trying to weaken the institution of the chief minister by replacing him with an in-service bureaucrat to head various development boards, which will make them completely unaccountable to the public. In a written statement, Warring added, "Being in opposition we do have numerous differences with the chief minister on various issues, but we do not approve undermining and taking away his authority. After all, he is the elected head of the govt, chosen by people of Punjab, while the chief secretary is only 'an appointed official'." BJP national general secretary Tarun Chugh called it an open assault on democratic governance and an insult to Punjab's elected leadership. "Will chief minister Bhagwant Mann and his cabinet now report to a bureaucrat? Has Punjab's cabinet been reduced to a puppet show run by Kejriwal's inner circle?" he said. BOX Govt calls it 'bold reform' The opposition parties' condemnation of the Punjab cabinet nod to appoint chief secretary as the chairperson of all urban development authorities stems from the fact that the post had been till now held by the chief minister of Punjab. The amendment proposed in the Punjab Regional and Town Planning and Development Act seeks to replace the CM with the chief secretary as chairperson of all urban development authorities. The govt, on the other hand, terms it as a "bold reform" aimed at "strengthening decentralised governance, speeding up decision making, and empowering the administrative setup to act swiftly on ground-level issues". The govt's statement said: "Previously, these authorities had inconsistent structures, Now, the cabinet has approved a uniform framework across all eight authorities with deputy commissioners and municipal commissioners included as members – ensuring that local matters are resolved efficiently at the authority level itself."

The Hindu

an hour ago

• The Hindu

Tripura government gives jobs to 18 next of kin of victims murdered in political violence

The Tripura Government has started the process of distributing job offers to families whose members were killed in incidents of political violence before the incumbent alliance government came to power in 2018. Jobs were handed to 18 next of kin of the victims, which an official on Sunday (June 22, 2025) described as the first phase of such recruitment. 'A committee was constituted to provide government jobs to persons whose family members were victims of political murders. So far, the panel has received 39 applications, and out of these, 18 persons have been given jobs,' Tripura Parliamentary Affairs Minister Ratan Lal Nath said at a press conference. 'Several families couldn't even file FIRs with police, and many case records are missing,' he claimed. The BJP-led government in December 2020 announced a scheme to provide jobs to next of kin of those killed in political violence over a period of 46 years with 2018 as the cutoff year. Thereafter, some jobs were disbursed to the affected families, but not blockwise like now. A State Government official said 18 aspirants who were selected from the list recommended by a committee which was earlier set up to identify the victim families. 'The primary consideration for recruitment is based on the financial condition of the families, but all those lost kin would also be considered in the next phases,' the official stated. The apparent policy of the State Government is to support only non-left families who fell prey to violence during previous CPI(M)-led governments. The victims, according to the official assessment, had been connected with the Congress party, as it was the main Opposition party in the state before 2018. CPI(M), now in opposition, alleged that the policy of providing government jobs only to non-left families is 'inhumane', as scores of left supporters were killed in political violence. A party leader pointed to targeted killings of left leaders, workers and supporters during the 'repressive' five-year rule of the Congress-TUJS alliance government from 1988 to 1993. (With PTI inputs)