6 min readBengaluru, ThiruvananthapuramMar 12, 2024 09:37 AM IST
First published on: Feb 7, 2024 at 08:12 AM IST
Opposition-ruled states, especially those from the south, have over the years complained about the Union government’s tax devolution policies and losing out on tax revenue. Now, they are set to hit the streets of Delhi in protest on Wednesday and there is talk about the southern states forming an alliance to seek their “rightful share” in taxes devolved by the Centre and protest against alleged disparities in allocation of Central funds.
The Karnataka government will protest in Delhi on Wednesday, followed by a Kerala Cabinet protest in the national Capital on Thursday.
What is the southern alliance?
Karnataka Chief Minister Siddaramaiah’s economic advisor Basavaraj Rayareddy has talked of the southern states floating an alliance that will serve as a forum from which they can articulate their position before the 16th Finance Commission. Karnataka is looking to mount pressure on the Commission to address the issue of the “significant reduction” in its revenue under the 15th Commission. Starting Sunday, Siddaramaiah and several Karnataka Congress leaders have taken to social media posting several posts on X with the hashtag #SouthTaxMovement.
Rayareddy told The Indian Express that the alliance would materialise only after the Lok Sabha elections. “The chief minister says it will be discussed at the party forum before going further. So, we will have to talk with the local Congress unit in Kerala. There will not be any problem in Tamil Nadu,” he said, adding they were yet to figure out how to rope in Andhra Pradesh where the YSR Congress Party of Jagan Mohan Reddy is in power.
Rayareddy said the 16th Finance Commission would submit its recommendations on October 31, 2025. “There is a lot of time still (for the alliance),” he added.
On Tuesday, Tamil Nadu Chief Minister M K Stalin wrote to Pinarayi Vijayan backing the Kerala government’s efforts to uphold the principles of fiscal federalism and appreciating it for moving the Supreme Court against the Centre. Central to his argument and that of Kerala is the allegation that the Centre has been exploiting its powers under Article 293 of the Constitution to severely limit the borrowing capacity of states.
Why is Karnataka protesting?
After the recommendations of the 15th Finance Commission came into force, Karnataka saw its share of taxes from the central pool drop from 4.71% to 3.64%. The state government has claimed that the reduction is a “punishment” for ensuring better standards of living in comparison to states in the north.
The Karnataka government is also protesting against the disparity in allocating funds to the state by the Centre. Deputy Chief Minister D K Shivakumar, other ministers, and party legislators are also scheduled to participate in the sit-in at Jantar Mantar.
Siddaramaiah has also written to all Union Ministers and MPs from the state seeking their support and participation in the protest. This includes Union Finance Minister Nirmala Sitharaman, her Cabinet colleagues Pralhad Joshi and A Narayanaswamy, and the Leader of Opposition in the Rajya Sabha Mallikarjun Kharge.
What is the shortage of funds in Karnataka?
Siddaramaiah told reporters in Bengaluru on Monday that allocations from the Centre had dwindled and estimated that Karnataka would lose out on almost Rs 1.87 lakh crore because of the Goods and Services Tax (GST) and the implementation of the 15th Finance Commission’s recommendations.
The government arrived at the figure of Rs 1.87 lakh crore by adding up the revenue shortage of Rs 59,274 crore due to GST implementation, the reduction in the state’s share of taxes as per the 15th Finance Commission that is cumulatively projected to be Rs 62,098 crore between 2020-’21 and 2025-’26, the alleged denial of the state’s share in cesses and surcharges imposed by the Centre and others amounting to Rs 55,000 crore between 2017 and 2024, and another Rs 11,495 crore recommended by the Finance Commission but rejected by the Centre. Apart from this, another Rs 5,300 crore promised in the 2022-’23 Union Budget for the Upper Bhadra lift irrigation project has also remained on paper, according to Siddaramaiah.
Why is Kerala going to protest?
The Kerala Cabinet led by Chief Minister Pinarayi Vijayan will protest against the “neglect of the Union Government towards the state”. The Left Democratic Front (LDF) government in the state has been highly critical of the Union government for curtailing its right to borrow money for developmental activities at a time when the state is facing a financial crisis.
On February 2, the Kerala Assembly unanimously passed a resolution asking the Centre to “desist from the move to slash down the state’s borrowing limit and withhold various grants to the state”. The Pinarayi Vijayan government has moved the Supreme Court alleging that the Centre is violating fiscal federalism and will prevent it from fulfilling commitments made in its annual budgets.
What is Kerala’s financial situation?
Kerala says the Centre has curtailed Rs 57,400 crore in state receipts and there is a shortfall of Rs 12,000 crore due to the cessation of GST compensation and a Rs 8,400 crore shortfall in this year’s Revenue Deficit Grant. The state’s revenue from the central pool has fallen by Rs 18,000 crore because of a reduction in its share from 3.87% to 1.92% between the tenures of the 10th and 15th finance panels. As per the Centre’s guidelines, Kerala’s borrowing limit is Rs 39,626 crore. The state Budget was prepared using that figure but the state gpverm,emt has been allowed to borrow only Rs 28,830 crore till now. The borrowing limit was cut short mid-fiscal without any prior notice, according to the state government.
What is the Centre’s position?
Nirmala Sitharaman told the Lok Sabha on Monday that the devolution of taxes was based on the recommendations of the Finance Commission and that she had no discretionary powers. The Union Finance Minister said 100% of state GST was transferred automatically to the states and roughly 50% of the integrated GST was shared with the states and periodically readjusted to actuals.
In a note to the Supreme Court in the case filed by the Kerala government, the Union government blamed the state’s financial woes on its “poor public financial management”. The Centre told the court that Kerala had been allotted substantial resources from central taxes and duties, the highest share of post-devolution Revenue Deficit Grant, financial support over and above the Finance Commission’s proposals, and substantial transfer of resources under centrally sponsored schemes.
— With inputs from Arun Janardhanan in Chennai
Kerala Finance Minister KN Balagopal presents the State Budget 2024-25 during the Kerala Assembly session, in Thiruvananthapuram. (PTI Photo) 
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