‘Growth should not be penalised’: Karnataka CM urges 16th Finance Commission for fairer tax devolution

New Delhi/Bengaluru

Chief Minister (CM) Siddaramaiah has strongly pitched for a fair, transparent, and growth-oriented fiscal devolution system, stressing that high-performing states like Karnataka must not be penalised for their economic success. He presented Karnataka’s views before the 16th Finance Commission led by Chairman Arvind Panagariya on Friday

“Karnataka fuels national growth but receives disproportionately low fiscal returns,” the CM told the Commission, pointing out that while Karnataka contributes nearly 8.7% of India’s GDP with just 5% of the population, it receives back only 15 paise for every rupee contributed to Union taxes.

He highlighted that Karnataka’s share of tax devolution was reduced from 4.713% to 3.647% under the 15th Finance Commission, causing a cumulative revenue loss of over ₹80,000 crore.

Presenting both a main and an additional memorandum, the CM laid out key demands

• Vertical devolution to be raised to 50%, with cesses and surcharges capped at 5%, and non-tax revenues of the Union included in the divisible pool.
• In horizontal devolution, each state should retain 60% of its contribution, with 40% shared to assist less-developed states—balancing growth and equity.
• Reduction of income-distance weightage by 20%, redirecting it to reflect states’ actual GDP contribution, to avoid penalising performing states like Karnataka.

Siddaramaiah also criticised the current design of Revenue Deficit Grants, arguing they have failed to resolve persistent deficits in recipient states. He proposed redistributing these grants through the same horizontal devolution formula applicable to all states.

The CM underlined that welfare spending, such as schemes aimed at uplifting low-income groups, must be treated on par with committed expenditures like salaries and pensions in fiscal assessments. “Welfare initiatives drive inclusive growth and local demand and cannot be discounted in fiscal evaluations,” he said, invoking Gandhiji’s Sarvodaya philosophy.

On special grants, Karnataka suggested replacing discretionary allocations with a formula-driven provision of 0.3% of Gross Union Receipts, while reiterating its request for critical funding for Bengaluru’s infrastructure and backward regions like Kalyana Karnataka and Malnad, which suffer from low income and poor connectivity.

The CM sought ₹1.15 lakh crore for Bengaluru’s development, citing its pivotal role in the state and national economy.

In his closing remarks, Siddaramaiah said

“Karnataka’s fiscal strength powers India’s growth. The Finance Commission must ensure that progress is rewarded, not penalised. Growth and equity must go hand in hand to build a stronger India.”

Senior officials, including Chief Secretary and the Economic Advisor to the CM, were present during the meeting with the Commission.