BJP-ruled states like Madhya Pradesh have asked the 14th Finance Commission for a uniform share of 50 per cent of Central tax collections.
Some Congress-ruled states, such as Assam and Kerala, have also made a similar demand. Interestingly, Gujarat had made a similar plea under then Chief Minister Narendra Modi. In addition to a 50 per cent share, it had also asked for revenues from the sale of natural resources, such as spectrum, to be shared. A change in revenue-sharing would have important consequences for the nature of federalism and governance in India, and these issues need careful consideration.
Under the Constitution, the Central government collects most of the taxes and duties, and distributes them among the states after considering the recommendations of the finance commission. The Central government’s control over the revenues collected and the manner of distribution have long been a thorny issue in Centre-state relations. State governments routinely accuse the Central government of political partisanship and favouritism, or of being uncooperative. In some cases, the Central government has been accused of arm-twisting state governments into implementing its pet projects before they can get their share of the revenue. Clearly, this model of revenue-sharing needs to be changed to give states greater autonomy in deciding their policy preferences. A larger share in the revenue pie would make states less dependant on the Central government. It would, at the same time, reduce the Centre’s power to dictate policy preferences to states.
However, even if these demands are accepted, in whole or part, by the finance commission and the present government, there is nothing to prevent a future government from going back to the present system. A future finance commission may recommend a lower share of the revenue pie to states. Even if it does not, the Central government is not constitutionally bound to accept the recommendations of the finance commission in their entirety. The BJP’s election manifesto promised to “evolve a new model of national development, which is driven by states”. If the new government is serious about implementing this promise, it should consider structural reforms aimed at ensuring that state governments cannot be deprived of an increased share of revenues by any future ruling dispensation at the Centre.