Karnataka Chief Minister Siddaramaiah Seeks Pro-Growth Tax Devolution from 16th Finance Commission

Karnataka Chief Minister Siddaramaiah recently met Union Finance Minister Nirmala Sitharaman to discuss tax devolution strategies for the 16th Finance Commission. Siddaramaiah highlighted Karnataka's financial setbacks under the 15th Finance Commission and requested a larger share from the central tax pool starting April 1, 2026. He emphasised the need for a pro-growth approach in fiscal transfers among states.

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Tax Devolution Concerns

Siddaramaiah informed Sitharaman that Karnataka suffered a cumulative loss exceeding Rs 80,000 crore due to reduced tax devolution by the 15th Finance Commission. The state's share decreased from 4.713% to 3.647%, marking a reduction of over 23%. Additionally, Karnataka was denied Rs 11,495 crore in special grants during this period.

The chief minister attributed these losses to the heavy reliance on the income-distance criterion, which had a 45% weightage under the previous commission. Siddaramaiah proposed reducing this weightage by 20 percentage points and reallocating it to fiscal contribution, reflecting the state's share in national GDP.

Proposals for the 16th Finance Commission

Karnataka has suggested discontinuing Revenue Deficit Grants in their current form, arguing they conflict with fiscal discipline principles outlined in the FRBM framework. Instead, Siddaramaiah recommended redistributing these funds—1.92% of Gross Union Receipts under the 15th Finance Commission—among all states using a horizontal devolution formula.

Siddaramaiah also highlighted developmental challenges in Bengaluru, Kalyana Karnataka, and Malenadu regions. He stressed that fair and pro-growth devolution would boost Karnataka's growth trajectory and improve national resource mobilisation.

Cooperative Federalism and National Growth

The chief minister clarified that Karnataka's proposals were not seeking special treatment but aimed at fostering cooperative and competitive federalism. He urged Sitharaman to include these suggestions in the Union government's memorandum to the 16th Finance Commission, arguing that growth-friendly devolution would empower all states to contribute effectively to India's development journey.

The Finance Commission provides recommendations on financial relations between the Centre and states. The 16th Finance Commission, established in December 2023 under Arvind Panagariya's chairmanship, is expected to deliver its recommendations by October 31, 2025. These will apply for five years starting April 1, 2026.

The previous commission, led by N K Singh, recommended allocating states 41% of the divisible tax pool from April 2021 to March 2026. Siddaramaiah's meeting with Sitharaman concluded with a request to consider Karnataka's proposals for a more equitable distribution of resources among states.

With inputs from PTI