Tamil Nadu Assembly adopts unanimous resolution on fair share of Central tax devolution
Moving the resolution, Finance Minister N. Marie Wilson called upon the Centre to adopt a transparent, objective, and equitable methodology for the devolution of Union taxes
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Context
The Tamil Nadu Assembly unanimously passed a resolution urging the Union government to ensure a fair and equitable share of central taxes for the state. The resolution highlights the tension between the financial contributions of better-performing states and the actual devolution they receive under the current fiscal framework, arguing that states shouldn't be penalized for achievements in population control and human development.
UPSC Perspectives
Polity
This news highlights a core tension in Indian fiscal federalism regarding the vertical and horizontal distribution of resources. The distribution of net tax proceeds between the Union and the States, and among the States themselves, is governed by recommendations made by the , a constitutional body established under . Tamil Nadu's resolution reflects a growing concern among Southern states regarding the criteria for horizontal devolution (the formula used to divide the states' share among individual states). Historically, criteria like population and income distance have favored more populous and less developed states, leading to grievances from states like Tamil Nadu that contribute significantly to the national exchequer but receive proportionately less in return. The state argues that this creates a perverse incentive, effectively penalizing states that have successfully implemented national policies on family planning and economic development. UPSC candidates should connect this to the broader debate on cooperative federalism and the evolving role of the in balancing equity with efficiency.
Economic
From an economic perspective, the resolution touches upon the principles of equity versus efficiency in public finance. Equity demands that resources are transferred from richer regions to poorer ones to ensure a minimum standard of public services across the country. This is the rationale behind criteria like 'Income Distance' used by the . However, the efficiency principle suggests that states demonstrating better fiscal effort (raising their own revenues) and better governance should be rewarded. The resolution argues that the current devolution formula places states like Tamil Nadu at a "comparative disadvantage" because their success in human development indicators and population stabilization is not adequately compensated. The demand is for a more "transparent, objective, and equitable methodology" that considers not just need (population, area) but also performance (demographic performance, tax effort). This debate is crucial for understanding the challenges in designing a formula that encourages fiscal discipline without exacerbating regional inequalities.
Governance
The resolution underscores a significant governance challenge: how to reward states for good performance while ensuring inclusive growth across the nation. The adoption of a unanimous resolution by a state assembly signifies strong political consensus on the issue of state autonomy and financial rights. It points to a need for institutional mechanisms that can better address state grievances regarding resource allocation. The , established under , is the constitutional forum designed to discuss such center-state and inter-state issues, although its effectiveness in resolving complex fiscal disputes is often debated. The resolution's call for recognizing "governance performance and developmental needs" suggests that the criteria for devolution should perhaps be more nuanced, incorporating metrics that reflect a state's effectiveness in service delivery and infrastructure creation. This highlights the ongoing need for governance reforms that strengthen the financial foundation of states, enabling them to fulfill their constitutional responsibilities effectively.