Most states, including Uttar Pradesh, want share in Central taxes hiked to 50%: Finance commission chairman

Hindustan Times

2 days ago

A majority of the 28 states, including Uttar Pradesh, have demanded that the 16th Finance Commission should recommend an increase in the states' share in the divisible pool (of the Centre's tax revenue) from 41% to 50%, the commission's chairman Arvind Panagariya said during a visit to Lucknow on Wednesday.
Panagariya also said Uttar Pradesh's tax collections are very good and the state has prudently managed its finances.
He made these observations after a meeting with the Uttar Pradesh team led by chief minister Yogi Adityanath and viewing a presentation that additional chief secretary finance Deepak Kumar made before the finance commission at Lok Bhavan in the state capital.
Panagariya called the chief minister's speech vibrant and said he (Adityanath) spoke about the state's progress in different areas and its expectations.
The finance commission chairman also said, barring the Covid period, the state's fiscal deficit remained within permissible limits. The state's debt to GSDP ratio was also within manageable limits, he added.
Noting that U.P's tax collections and GSDP have been on the rise, he said the state's expenditure is well designed.
Panagariya said 22-23 or more of the 28 states have recommended an increase in the share of states.
'The Uttar Pradesh government, like most other states, has recommended to the Finance Commission that the share of states be increased from 41% to 50%,' Pangariya said, speaking to media persons, here on Wednesday.
As Uttar Pradesh's share in the divisible pool came down marginally from 17.959% to 17.931% (2021-22 to 2025-26) following the 15th Finance Commission's recommendations, the state government requested the 16th finance panel to make changes in the horizontal devolution formula – the distribution of revenue among the states.
The commission was also urged to make U.P-specific recommendations.
The request for changes in the criteria for horizontal recommendation has been made as more weight given to population may work for the state, but the demographic performance that includes Total Fertility Rate (TFR) goes against it.
As the finance commissions in the past have given more weight to the poorer states, Uttar Pradesh, with a lower per capita income, would be in an advantageous position if the income distance criteria is retained. The 15th Finance Commission had recommended 15% weight to population, 15% to area, 10% to forest and ecology, 2.5% to tax effort, 12.5% to demographic performance and 45% to income distance.
The state government has requested the 16th Finance Commission to change the horizontal devolution criteria and give 22.5% weight to population, 10% to area, 5% to forest and ecology, 10% to tax effort, 7.5% to demographic performance and 45% to income distance.
Panagariya said the commission would finalise its recommendations after completion of consultations with the Union ministries. He said with its UP visit, the commission's consultations with 28 states are complete.
About U.P's loss-making public sector units, he said the state government informed the commission about the move to privatise two power distribution companies.
The commission also met representatives of panchayat raj institutions, urban local bodies, trade and industry and political parties. The commission, which visited Ayodhya on Tuesday, will wind up its Uttar Pradesh tour by paying a visit to Varanasi on Thursday.
Besides making recommendations regarding vertical devolution (distribution between the Centre and the states), the Finance Commission also makes recommendations about horizontal devolution — the distribution among the states.
As per the provisions of Clause (1) of Article 280 of the Constitution of India, the Finance Commission is constituted every five years to make recommendations to the President of India about the distribution of net proceeds of central taxes between the Centre and the states.
The 16th Finance Commission will submit its report for the five-year period from 2026-2027 to 2030-2031. The 15th Finance Commission covered a six-year period. It submitted two reports — the first for 2020-2021 and the second for 2021-2022 to 2025-2026.
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