Why tax devolution and delimitation are leaving South India agitated

Close on the heels of Congress MP DK Suresh’s ‘separate nation’ remark sparking a massive row, leaders of the grand old party in Karnataka are looking at forming a forum for southern states that serves as an “economic alliance” to guarantee equal distribution of resources from the Centre.

Coming out in the open against the Centre, Karnataka Chief Minister Siddaramaiah alleged that the Union government has meted out “injustice” to the state in terms of reduction in tax devolution, which he claimed has translated into a loss of more than Rs 45,000 crore to the state in the last four years.

According to Basavaraj Rayareddi, the CM’s economic advisor, it is still a fledgling idea. "I have proposed the idea of the ‘Economic Alliance of Southern States’ and discussed it with Chief Minister Siddaramaiah," he told The Federal. "It’s currently just an idea, and we need to wait for the Chief Minister's approval."

"Once we get his nod, we will decide on involving other southern states to move ahead in this direction,” he said.

Top tax contributors

He underlined the fact that Karnataka ranks second in terms of tax collection at the national level while stating that other southern states like Tamil Nadu, Kerala and Andhra Pradesh also contribute a lot to the nation’s economy.

“Our tax collections are being distributed to non-yielding states in northern India. We have no objection to it as we must respect the federal structure, but the Centre is perpetrating injustice by reducing tax devolution. Hence, I have mooted the idea of an economic alliance of southern states,” he explained.

Karnataka Congress leaders have expressed disappointment with Union Finance Minister Nirmala Sitharaman’s Interim Budget announcements, and are all set to stage a protest in the national capital on Wednesday (January 7) over the issue.

Protest planned

Karnataka Deputy CM and KPCC president DK Shivakumar said the state unit of the Congress, including all MLAs, MLCs and MPs, will protest against the Union government “for not allocating proper funds” to the state in the Interim Budget. “Karnataka is the state that generates the second highest tax in the country, and it is sad that our state is denied its due every time. For the last five years, the BJP government has been ignoring Karnataka. This is unfair,” he said.

“We must raise our voice now. There is no other option but to protest. We are even inviting BJP and JD(S) functionaries to join the Delhi protest. For now, we are protesting on our own,” he added. The idea of a southern forum is gaining ground, particularly against the backdrop of Karnataka Congress announcing a protest.

Neighbouring states Kerala and Telangana may also hold similar demonstrations in New Delhi in the coming days.

Kerala's plan

Incidentally, a similar proposal was put forth by the Kerala government in 2018. At the same time, Siddaramaiah who was Karnataka CM then too, had complained about the terms of reference of the 15th Finance Commission over tax devolution being unfair.

Kerala’s then Finance Minister TM Thomas Isaac had even called for a meeting of his counterparts in other southern states to put up a united face on the issue.

However, the idea didn’t take off as the Karnataka assembly polls were announced before any concrete measures could be initiated.

DMK MPs to stage protest

Accusing the BJP-led Union government of bias in allocating funds in the 2024-25 interim budget, DMK MPs will stage a ‘black shirt’ demonstration in front of the Gandhi statue in the Parliament complex on Thursday (February 8).

The DMK also lashed out at the Centre for not extending flood relief to Tamil Nadu and requested MPs of its allies to join the protest. DMK parliamentary party leader TR Baalu said the state had sought Rs 37,000 crore from the central government for rehabilitation and restoration work in rain-affected areas.

“The Budget also did not allocate funds for constructing AIIMS and other schemes in the state,” he said while strongly condemning the BJP government’s "step-motherly treatment" to the state.

‘Nothing to strengthen states’

Kerala Chief Minister Pinarayi Vijayan also felt that the demands and interests of the state were completely ignored by the Centre in the Union Interim Budget.

“Though the budget claims to make India a developed nation by 2047, there are no measures to strengthen states, which is the basic tenet to achieve any such target. The Union budget and its parochial approach will only add to the financial imbalance across regions, hurt interests of states and contribute to inflation. A slew of demands, including raising the borrowing limit of states, have not been given due consideration. The loan for capital expenditure, too, has come down,” said the CM. 

Similarly, AICC secretary SA Sampath Kumar said the Union Interim Budget has left the people in Telangana disappointed as there was nothing in it for the state. “Chief Minister Revanth Reddy met Prime Minister Narendra Modi and submitted a representation to him. However, the budget didn’t make any allocation to the state or even mention about the promises made to Telangana in the State Reorganisation Act,” Sampath said.

Congress MP triggers row

Earlier, Congress MP DK Suresh triggered a major controversy as he talked about “separate nationhood for southern states”, a day after the Interim Budget was presented in Parliament.

He made this statement amid accusations of the ruling BJP’s “unfair treatment” of Karnataka. In a post on X (formerly Twitter), the MP wrote, “While Karnataka stands 2nd in Highest GST Collection, it is one of the last few states to receive grants. Karnataka was among the states that lost heavily under the 15th Finance Commission. The 14th Finance Commission gave Karnataka a share of 4.71 per cent in the divisible pool of taxes. The state's share came down to 3.64 per cent.”

Suresh contended that taxes collected from southern states were disproportionately distributed in the north. He warned that if this perceived injustice was not rectified, southern states might be compelled to demand separate nationhood. “The Centre is not properly giving the right share of GST and direct taxes to South Indian states, which are facing injustice. The money collected from southern states is being given to north Indian states. If this continues, we will be forced to demand a separate country,” he said.

Delimitation concerns

Apart from allocation of funds, another fear that looms large over the southern states is that the impending delimitation exercise will slash their representation in Parliament.

In 2002, the 84th amendment to the Constitution froze the number of parliamentary seats till the end of 2025. Southern states have long feared that any rejig in the number of seats will benefit the more populous states in northern India and hurt south India’s relative weight in Parliament.On delimitation of Lok Sabha constituencies and the potential increase in MPs from northern states posing a threat to the federal structure, particularly southern states, Rayareddi noted that population count could be problematic for southern states in the delimitation process.

“We have to wait until that process starts. The primary concern is that we produce more and it is distributed to other states. In the federal structure, we must support weaker states, but it doesn’t mean we should receive only a pittance compared to what we have given to the Centre,” he told The Federal.

Population growth

“It is unjust that southern states, which have diligently followed the Union government’s policies to control population growth, may face punitive measures during the constituency delimitation,” Tamil Nadu Chief Minister MK Stalin had stated in September last year. 

“We will have to defeat the political conspiracy of increasing the number of MPs based on population and reducing the political representation of South India. The attempt to render injustice to a politically aware Tamil Nadu should be nipped in the bud….I urge the PM to provide assurance that southern states, particularly Tamil Nadu, will not experience a reduction in representation during the impending delimitation process based on population,” he had stated.

(With inputs from Naveen Ammembala in Bengaluru.)