Adopt framework to incentivise states’ performance: Thennarasu
He also highlighted the imbalance in the distribution of powers and responsibilities
CHENNAI: The Finance Commission must rethink its approach on distribution of tax share to poor states while adopting a framework to incentivise performance and foster an environment for all states to thrive, said Finance Minister Thangam Thennarasu on Thursday.
He was delivering his address at the conclave of Finance Ministers organised by the Kerala government in Thiruvananthapuram.
“It is imperative that states collectively advocate for a 50 per cent share in the central tax devolution. We must urge the commission to ensure that reliance on discretionary grants is reduced, and that predictable and objective resource transfers are increased. The commission must devise a mechanism to restrict the use of cess and surcharges and recommend appropriate measures to protect the interests of States.”
Even as he avoided any overt criticism of the BJP-led NDA government at the Centre on the issue, Thennarasu highlighted the inherent imbalance in the distribution of powers and responsibilities between the Union and States.
While States are entrusted with the majority of responsibilities related to the development of society and the delivery of public services, including education, health, agriculture, social welfare, the Union retained the majority of the powers of revenue generation, he said. “It is in this context that the successive Finance Commissions have tried to increase the distribution of net proceeds between Centre and States,” Thennarasu said.
Tamil Nadu has been consistently penalised by successive Finance Commissions for its better performance, with the State’s tax share falling to a meagre 4.079 per cent in the 15th Finance Commission from 7.931 per cent during the 9th Finance Commission. This continuous reduction amounted to a loss of Rs 3.57 lakh crore, which is equal to 43 per cent of Tamil Nadu’s outstanding debt.
“This reduction has not only put a burden on the State finances, but also reflects the lost opportunity for the State to achieve its full potential,” he said.
Every Finance Commission tried redistribution to poorer states, but the approach failed to achieve the desired levels of development. “It is an indication that the Commission must rethink its approach and adopt a framework that incentivises performance and fosters an environment where all States can thrive, rather than constraining the progress of those leading the way,” he said.