ಮಹಾರಾಣಿ ಲಕ್ಷ್ಮಿ ಅಮ್ಮಣ್ಣಿ ಕಾಲೇಜು ತರಗತಿ ಕೊಠಡಿ, ವಿದ್ಯಾರ್ಥಿನಿಯರ ವಿಶ್ರಾಂತಿ ಕೊಠಡಿ, ಲಾಂಜ್ ಗಳ ಉದ್ಘಾಟನೆ

 Bangalore, (Karnataka Information) : On behalf of the Government of Karnataka, I extend a warm welcome to the 16th Finance Commission Chairman, Dr. Arvind Panagariya. I also welcome the distinguished Members - Shri Ajay Narayan Jha, Smt. Annie George Mathew,  Dr Manoj Panda and Dr Soumya Kanti Ghosh.

I also wish to express my sincere gratitude to Finance Commission for their visit to the State. I am confident that our discussions today will be a crucial step towards tackling the significant challenges we face and contribute to realizing India's full potential. Fiscal federalism, as enshrined in our Constitution, is fundamental to promoting “Cooperative Federalism,”  a term our Prime Minister has coined. Article 280 mandates the appointment of the Finance Commission as an expert, independent, and impartial body to make recommendations on sharing of tax proceeds between the Union and the states and among the states.

We trust that the Commission will address the vertical and horizontal imbalances keeping both Equity and Efficiency principles in mind. It is understandable that the Constitution provides for re-distribution of the tax proceeds among the states. The Finance Commission, however, need to carefully examine the impact of extremely high emphasis given to equity on the incentives of well performing states. Moreover,  the taxpayers of such states expect their taxes to work for them. This creates public trust. The Finance Commission therefore needs to do a tightrope walk while balancing equity with efficiency and performance.

Karnataka has been central to India's growth story. It contributes approximately 8.4% to the national GDP with only about 5% of the population. The State ranks 2nd in total GST contribution to the country.  Despite Karnataka's substantial contribution of about  Rs 4 lakh crores to the Gross Tax Revenue of the Union every year, the state gets about Rs 45,000 crore in the form of devolution and about Rs. 15,000 crore grant-in-aid. This means that for every rupee Karnataka contributes, only 15 paise  is returned to the state.

The 15th Finance Commission’s award reduced Karnataka’s share sharply from 4.713 to 3.647. This has led to a loss of  Rs. 68,275 crore during the 5-year period from 2021-26. The Finance Commission was conscious of the drastic cut Karnataka received and recommended state specific grants of Rs.11,495 crores. The Government of India, however, has not accepted the recommendation. So, Karnataka was deprived of these grants as well. The total of all the losses amount to Rs 79,770 Crores during the 15th Finance Commission period.

Karnataka has seen a revenue transfer of Rs 35,000-40,000 crore per year to other States, amounting to 1.8 percent of its GSDP, during the 15th Finance Commission period. The   figure is astounding because the net transfers outside of Karnataka amount to about 50 to 55 percent of the total revenues it generates. Due to the disproportionate weightage given to equity, Karnataka and similarly placed States end up getting penalized for their good performance, both fiscally and demographically.

Cesses and Surcharges are not part of the divisible pool. Over the years Union Government has increased its reliance on cesses and surcharges. This has led to the divisible pool not growing in the same proportion as the Gross Tax Revenue. This has caused substantial loss to all the States. The loss to our State on account of the non-sharing of Cesses and Surcharges from the divisible pool is Rs. 53,359 crore during the period 2017-18 to 2024-25. Despite such a reduction of central transfers, Karnataka has kept its commitment to its flagship schemes such as the FIVE Guarantees. We have also not compromised on capital expenditure. Recognizing the high multiplier effect of Capital expenditure, Karnataka has maintained its capital expenditure at 2% of its GSDP since 2013-14. The state ranks number one in terms of capital expenditure.

                                     

However, the reduction in central financial transfers is placing severe limitations on the ability of the States to invest in physical and human infrastructure. This issue must be addressed urgently.  Economically advanced States are committed to supporting poorer States, but this should not come at the expense of their own residents or economic efficiency. A larger proportion of resources generated by the States should be shared with them.  The State also faces regional imbalances, especially in the Kalyana Karnataka region. The state also faces the challenges of urbanization. These require greater devolution by the centre.

Bangalore needs an investment of Rs. 55,586 crore over the next five years out of which we request for a grant of Rs. 27,793 crore. Similarly, for the equitable development of the Kalyana Karnataka region, the State is investing Rs.25,000 crore and requests a matching grant of Rs.25,000 crores over five years from the 16th Finance Commission.

To ensure effective disaster mitigation and timely relief  and rehabilitation measures in the highly vulnerable region of Western Ghats, we request a grant of Rs.10,000 crore. Regarding the Horizontal and Vertical Devolution, I would request the commission to recommend that:

                                           

Vertical Devolution should be at least 50% of the divisible pool. The cesses and surcharges should be capped at 5% of gross tax revenue.   Anything exceeding that should be a part of the divisible pool. And all non-tax revenues of the Centre should be included in the divisible pool of taxes by bringing the necessary Constitutional amendment.

We request the Commission to take a bold view and approach, whereby equity considerations are balanced with sufficient reward for efficiency and performance. Karnataka recommends that 60% of contribution of a state to the divisible pool, for inter se allocation among states, should be given to that state.

                                     

At this pivotal moment, wherein the fiscal relations between the Centre and the States has come into sharp focus, the recommendations of the 16th Finance Commission will significantly impact our ability to achieve sustainable and inclusive development.  A strong Karnataka is crucial for a strong India. States with strong contribution to the country’s GDP and Gross Tax Revenue, help build the nation in more ways than one. Seven crore Kannadigas, while being proud of their contributions to the country, have aspirations. They look up to the Commission to advocate a balanced and fair approach to sharing of resources. I look forward to a productive discussion during this meeting today.