States Urge Finance Commission to Raise Share from Divisible Pool to 50%

Several states have requested an increase in their share of the central divisible pool from 41% to 50%, according to Aravind Panagariya, chairman of the 16th Finance Commission. Additionally, many states want a portion of the cess and surcharge imposed by the central government. The divisible pool consists of gross tax revenue shared between the Centre and the states, excluding surcharges and cess.

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Panagariya mentioned that during consultations with various states, most demanded a 50% share in the central pool. Only a few states asked for a 45% increase. He shared these insights after meeting with Odisha Chief Minister Mohan Charan Majhi during the commission's four-day visit to Odisha. The Odisha government also supports including cess and surcharges in the divisible pool for state distribution.

Odisha's Financial Concerns

The Odisha government has expressed concerns about revising the weightage assigned under different criteria for distributing divisible pool funds among states. They argue that cess and surcharges collected by the Union Government should be part of this pool. Panagariya explained that currently, all funds from these charges go directly to the Centre's budget.

Odisha has also sought Special Category status due to its vulnerability to natural calamities. However, Panagariya clarified that this issue does not fall under the Finance Commission's jurisdiction. Previously, such status was granted by the Planning Commission, but since its replacement by NITI Aayog, no state has received this designation.

Opposition's Stand on Central Allocation

Opposition BJD president and former chief minister Naveen Patnaik submitted a memorandum to the 16th Finance Commission. He claimed that Odisha has been neglected by successive central governments, resulting in an unfair share from the Central Divisible Pool of Taxes compared to its revenue contributions. Patnaik asserted that this has hindered Odisha's growth and sustainability.

Patnaik emphasized that his party is committed to advocating for Odisha's rightful share of resources. He highlighted broader issues that have reduced net central transfers to states over time and eroded their financial autonomy. Meanwhile, Chief Minister Majhi requested Rs 12,59,148 crore for Odisha from 2026 to 2031 in a memorandum to the commission.

The discussions around increasing state shares in the central pool reflect ongoing debates about fiscal federalism in India. States are seeking more financial autonomy and equitable resource distribution to address their unique challenges and development needs effectively.