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'Fiscal Injustice': Karnataka's point of View

By Varun Hari Prasad

The Karnataka Cabinet, led by Chief Minister Siddaramaiah had staged a day long protest in New Delhi on 7th February 2024 accusing the Union Government led by Prime Minister Narendra Modi of committing injustice to Karnataka in allocation of funds. Even though the Union Finance Minister Nirmala Sitharaman has responded to allegations by dismissing it as politically motivated, this is not the first time that Karnataka has expressed concern over injustice in allocation of funds.

In this essay, I share my thoughts on the concerns raised by the southern States, especially Karnataka, on the injustice in allocation of funds.

What are Karnataka's concerns?

1. The Decision to use 2011 Census Data

The primary concern raised by Karnataka is against the 15th Finance Commission using the 2011 Census data instead of the 1971 Census. This concern is being raised because States that failed to implement population control measures effectively will have an unfair advantage over the States that have effectively implemented population control policies. Had the 15th Finance Commission used the 1971 Census data (as used by the 14th Finance Commission), the State of Karnataka would have received an additional 62,098 crore rupees between 2020-21 to 2025-26. In addition to this, the Union Government has not released the 6,000 crore rupees special grant recommended by the Finance Commission.

2. Implementation of GST

The other important concern is regarding the manner in which GST is being implemented. While introducing the GST, which is a centrally administered tax, the Union Government had assured the States of a protected annual growth of 12% (the Union Government would compensate for the difference).

Year

GST Protected Revenue

(A)

Actual GST Revenue

(B)

Shortfall (C)

(A-B)

Compensation Received

(D)

Loss to State

(C-D)

2017-18

35,226

24,182

11,044

6,246

4,798

2018-19

53,544

41,956

11,588

10,754

834

2019-20

61,044

42,147

18,897

14,497

4,400

2020-21

69,600

37,771

31,889

26,196

5,693

2021-22

79,332

49,929

29,403

27,085

2,318

2022-23

90,444

61,403

29,041

20,288

8,753

2023-24

1,03,106

69,436

33,670

1,191

32,479

TOTAL

4,92,296

3,26,764

1,65,532

1,06,257

59,275

 

Source: Karnataka Finance Department; 2023-24 figures are as per Budget Estimates                                               *All amounts are in rupees crores

As illustrated in the table above, the GST Protected Revenue for Karnataka from 2017-18 to 2023-24 (BE) was 4,92,296 crore rupees. The actual GST revenue collected in Karnataka from 2017-18 to 2023-24 (BE) was 3,26,754 crore rupees, with the shortfall being 1,65,532 crore rupees. The compensation due to Karnataka was 1,65,532 crore rupees over this period (i.e. 2017-18 to 2023-24) but the Compensation actually received is 1,06,257 crore rupees, which is a loss of 59,275 crore rupees as per the State Government.

3. Cess & Surcharge

Another concern is regarding the manner in which the Union Government has imposed various cess and surcharge. This is because the cess and surcharge collected are not shared with the States and also because if more cess and surcharge is collected, the funds available in divisible pool for distribution among states will become less. The Union Government has collected 27,66,588 crore rupees between 2017-18 to 2023-24. Had this revenue also been distributed among states, Karnataka would have received 45,322 crore rupees (as per the estimate of Karnataka Revenue Department).

4. Reduction in Grant in Aid

As per the reply given in Parliament to a question of CPI(M) MP John Brittas (dated 01/08/2023), Karnataka has witnessed a drastic decline in the grant-in-aid it receives from the Union Government:

Year

2018-19

2019-20

2020-21

2021-22

2022-23

Grant-In-Aid Received by Karnataka (in amount)

34,479.54

34,479.54

30,075.92

41,935.87

22,281

Grant-in-Aid Received by Karnataka as a %age of Total Grant-In-Aid shared with States by GoI

7.03%

7.03%

5.10%

5.51%

2.67%


The above table shows that the Grant-In-Aid received by Karnataka has reduced both in percentage and absolute terms.

The Way Ahead

The data that is given above clearly without any doubt supports the statement made by the Chief Minister of Karnataka that injustice is being done to the State. Now that the 16th Finance Commission is also constituted, I hope that the they ensure that this damage is rectified.

It is no one's case that the entire revenue collected in a particular state should be given to that State itself. We are part of a Union of States and it is our responsibility to ensure that other States in the country also develop and prosper. But we must also remember that it should not be done by depriving another State like Karnataka.

Therefore, I hope that the Hon'ble Prime Minister, who himself was Chief Minister for about 12 years and has been vocal about issues related to devolution earlier, should ensure that this injustice is rectified in the 16th Finance Commission's recommendations. The Prime Minister is the Prime Minister for the entire country, there should be no discrimination between states governed by non-NDA parties. I urge him to stand by his promise of 'Sabka Sath Sabka Vikas' and 'Team India'.

*Views expressed are personal

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