Devolution of Funds and North - South Divide | J P Gadkari

Last month, on 7th February, Karnataka Chief Minister Siddaramaiah and his entire Cabinet staged a protest demonstration in the National Capital demanding Karnataka’s due share in the devolution of taxes collected by Centre as GST, cess and surcharges in the State. There has never been an instance of this kind in the history of Independent India where the Chief Minister of a State and his entire Cabinet had to come on the streets to demand what is due to their State legally and constitutionally.

Karnataka is the second State in the country after Maharashtra which contributes maximum to the collection of GST and other Central taxes. But it is being deprived of its due share of amount from the Central divisive pool for the last several years. According to official sources Karnataka has lost
Rs 1.87 lakhs crores because the Centre did not pay its due share to the State as per the terms and conditions of the 15th Finance Commission.

In a statement during the protest demonstration Siddaramaiah pointed out, that during the last four years alone the State had lost Rs 45,000 crores because the Centre has not paid its due share from the divisable pool. He further pointed out that during the financial year of 2023-24 the taxes collected from Karnataka were Rs 4.30 lakh crores, while the State received only Rs 50,257 thousand crores as it’s share under the scheme of devolution of funds to the State.

But more important than this was the accusation made by the Karnataka Chief Minister that these funds denied to the Southern States are being allocated and spent on the schemes being implemented in the Northern States.

Though Siddaramaiah did not give any specific evidence in support of his accusation, according to information available, the share of States in the divisible fund in the Tenth Finance Commission, 1995 - 2000 to Fifteenth Finance Commission, 2021-2026, the share of all Southern States has dipped significantly. For Andhra Pradesh it is 1.6 percent, Tamilnadu 2.1 %, Kerala1.6 % and Karnataka 1.3 %.

In a written statement in Rajya Sabha on 9th February 2024, the Finance Minister gave details of the amounts of money that is contributed by States to Central divisible pool which shows that while Bihar gets Rs 7.26 and U P gets Rs 2.49 against every Rupee contributed by them, Karnataka among other Southern States gets only 17 paise in return.

Moreover, the Central Govt in order to circumvent the amendment made to devolution procedure in 2000 had introduced schemes like cess and surcharges, which actually are additional taxes, on various items to augment its own collection of taxes without sharing them with States. However, it is understood, that the Centre spent only 60% of the same on schemes for which these additional taxes were collected and had accumulated a whooping sum of nearly Rs 45.5 lakh crores which was then put in Central Reserve fund. It is further learnt that this Reserve Fund money is now being spent for "other purposes" by the Centre which is not specified. But there is certainly some evidence that this money from the Reserve Fund is being diverted to announce scores of new schemes, many of them in BJP ruled States like UP, Rajasthan, Madhya Pradesh, Chatisgarh, Haryana, Assam and North East on the eve of the forthcoming Lok Sabha polls by the Prime Minister or being diverted to fulfill the "Modi ki Guarantee" as election promise.

Whatever it might be, it is totally unjust to deny the States, whether they belong to the South or North, their due share of taxes collected by Centre as the guidelines on devolution clearly states: "it is a constitutional mechanism established to allocate the proceeds of certain taxes among the Union and States in FAIR AND EQUITABLE manner".

Following the Karnataka Government’s protest, the State Governments of Kerala and Tamilnadu also raised their voice against this unfair practice and protested against it which was given a colour as "NORTH-SOUTH DIVIDE".

Further adding to this unsavory and unnecessary controversy, some political opponents of the Congress party created an impression by twisting a statement made by the only Congress M P from Karnataka,
D K Suresh, who happens to be the brother of Dy Chief Minister and KPCC President, D K Shivakumar that the M P is demanding "separation" of Southern States from the Union.

While D K Suresh had raised his voice against this unfair and unjust treatment being meted out to Karnataka in regard to devolution of funds, it was twisted to mean that the Congress M P had given a call for division of the country. The clarification given by Suresh was ofcourse blocked and suppressed by the Godi media.

But that apart, the issue raised by Karnataka Chief Minister Siddaramaiah and the protest launched by his Govt is serious enough which should be addressed urgently to render justice to southern States and avoid further mischief to spread divisive feelings and seeking desparate solutions to the problem.