During a two-day visit to Gujarat, the 16th Finance Commission stated that Gujarat, along with eight other states visited by the Commission, has requested an increase in the state’s share from tax devolution to 50 percent, up from the 41 percent recommended by the 15th Finance Commission. The Commission, led by renowned economist Dr. Arvind Panagariya, discussed this issue with Gujarat’s Chief Minister, Bhupendra Patel, and other state officials.
Panagariya mentioned that the distribution of tax revenues is currently at 41 percent for states and 59 percent for the central government. Gujarat, like the other states visited, believes that states should receive a larger share. Panagariya acknowledged that finding the right balance between state and central budgets is a complex task. He highlighted that previous changes in revenue sharing had led to the Central government increasing taxes through cesses and surcharges, which do not contribute to the divisible pool.
In addition to the tax sharing issue, Gujarat proposed a unique approach to dividing resources. The state suggested dividing tax revenues based on need and cost disability, equity, and performance. Gujarat recommended considering urbanization and a multi-dimensional poverty index when evaluating states’ needs and costs.
Panagariya also addressed concerns about rising state debts, emphasizing the Finance Commission’s focus on macroeconomic financial stability. The Commission is exploring ways to differentiate between subsidies, freebies, and incentives to ensure responsible budgeting by states and the Centre.
The Commission’s visit to Gujarat includes meetings with local bodies, industry representatives, trade bodies, and political parties to gather diverse perspectives on fiscal matters.
