The Southern States’ Case for Fair Resource Allocation

The previous two articles explored the Finance Commission’s framework and tax distribution criteria while also briefly highlighting the conflicts these distribution parameters have sparked. They also briefly addressed protests by Southern leaders against inadequate and disproportionate allocations. This article presents, in greater detail, the concerns, grievances, and suggestions of five southern states—Karnataka, Tamil Nadu, Kerala, Andhra Pradesh & Telangana—regarding resource allocation. It also examines trends in their share of total resource distribution over the past several years.

Interestingly, the tension between economically stronger regions and central fiscal policies is not unique to India. In Italy, for instance, the industrialised northern regions, particularly Lombardy and Veneto, have long demanded greater fiscal autonomy. These two regions alone contribute around 30% of Italy’s GDP, and many residents there resent financially supporting the country’s poorer southern parts. A similar sentiment exists in Spain. Catalan leaders argue that their region (Catalonia), which boasts a strong economy, contributes more to the central treasury than it receives in return. This perceived fiscal imbalance has been a significant factor fueling calls for greater autonomy and even independence.

In India, the five southern states have consistently demonstrated strong economic and social indicators. With major multinational companies in IT, automobiles, pharmaceuticals, and aerospace, as well as renowned educational institutions, these states have emerged as the country’s key financial and technological hubs.

While the southern states showed modest economic performance before 1991, the post-liberalisation era marked a turning point. Since the economic reforms, the region’s growth has accelerated sharply, and today, these states contribute nearly 30% to India’s GDP. The southern states also outperform the national average on per capita income, a key measure of individual economic well-being.

Table 1. Socio-Economic State Indicators

Parameter	Telangana	Karnataka	Tamil Nadu	Kerala	Andhra Pradesh	Uttar Pradesh	Bihar
3-Year Average (2016-17 to 2018-19) Per Capita Income (₹)	182,867	186,994	175,415	184,978	137,669	57,655	37,203
3-Year Average (2016-17 to 2018-19) Per Capita Own Tax Revenue (₹)	16345	14884	13432	14107	6117	5311	2699
3-Year Average (2016-17 to 2018-19) Per Capita GSDP (₹)	216426	224283	203323	211388	92220	73723	45474
Total Fertility Rate {% (2011 Population)}	1.7	1.8	1.6	1.8	1.6	2.6	2.9

A stark contrast exists between the Southern and Northern states, even on the demographic front. Southern states like Tamil Nadu, Andhra Pradesh, and Telangana have significantly reduced their contribution to the country’s population growth since 2011.  In contrast, northern states such as Uttar Pradesh, Bihar, and Jharkhand continue to drive population expansion, with Total Fertility Rates (TFRs) remaining above the replacement level of 2.1. Meanwhile, with TFRs well below this threshold, the southern states showcase progress in education, healthcare, and women’s empowerment.

Despite strong economic and social indicators, the southern states argue that they do not receive a fair share of financial allocations in tax sharing and grants. Their share in tax devolution has declined from 23.3% during the 2nd FC (1957-62) to 18.6% during the 13th FC (2010-15) and further to 15.8% in the 15th FC (2021-26).

Southern States’ Share in Tax Devolution

Note: In the years after Independence, many of today’s southern states were either renamed or formed by reorganising regions. For example, Travancore became part of Kerala, the Hyderabad region was merged into Andhra Pradesh, Mysore was renamed Karnataka, Madras became Tamil Nadu, and in 2014, Telangana was carved out of Andhra Pradesh as a separate state.

These states argue that even after achieving rapid development, significant intra-state disparities remain, with pockets of backwardness persisting despite high per capita incomes. The declining share in central tax devolution has hindered their ability to pursue balanced, state-wide development. Alongside these challenges, they have also raised both collective and state-specific concerns regarding the Finance Commission.

We will examine each state’s concerns individually to understand the factors behind their grievances and their suggestions to the Finance Commission. (Note: All the suggestions, concerns, grievances, and demands mentioned below have been expressed by political leaders, economic researchers, and think tanks.)

1. KARNATAKA: The ‘Indian Silicon Valley’ Seeks Its Due

Karnataka stands as a major driving force of India’s economy, particularly renowned for its dominance in the information technology (IT) sector. The state capital, Bengaluru, is widely recognised as the ‘Silicon Valley of India.’ Despite comprising only 5% of India’s population, the state contributes a significant 8.4% to the national GDP and is the second-highest contributor to Goods and Services Tax (GST) revenue. Home to over 5,500 IT/ITES firms and nearly 750 multinational corporations, Karnataka generates substantial exports valued at USD 58 billion and employs over 1.2 million professionals. The state’s robust economic performance is further highlighted by its estimated growth rate of 7.9% in 2022-23, outpacing India’s overall GDP growth of 7%.

However, despite its substantial economic contributions, estimated at around ₹4 lakh crore annually to the Union’s Gross Tax Revenue, Karnataka faces concerns regarding the share of funds it receives back from the Centre. The state receives approximately ₹45,000 crore through tax devolution and about ₹15,000 crore in grants-in-aid. This translates to receiving only about 15 paise for every rupee contributed to the central tax pool. This perceived disparity has led Karnataka to voice specific grievances and propose changes, particularly concerning the recommendations of the Finance Commissions.

A. Concerns Regarding the Tax Devolution Formula:

Karnataka has been a prominent critic of the tax devolution formula implemented by the 15th Finance Commission. The state government, led by Chief Minister Siddaramaiah, highlights that the Commission’s recommendations reduced Karnataka’s share in the divisible pool of taxes. According to him, this reduction is expected to result in a significant loss of ₹68,275 crore for the state between 2021 and 2026. He further points out that the situation has been worsened by the Union Government’s decision not to approve the state-specific grants of ₹11,495 crore that were recommended by the Commission. As a result, the total estimated financial loss for Karnataka during this period is projected to rise to ₹79,770 crore. It’s estimated that ₹35,000–40,000 crore is effectively transferred annually from Karnataka to other states due to the current formula.

Proposed Solutions: To address these imbalances, Karnataka has put forward suggestions for the 16th Finance Commission:

a. Adjust Weightage: Proposes reducing the weightage given to income distance criteria from 45% to 25% in the devolution formula.

b. Emphasise Efficiency: Advocates for greater emphasis on efficiency metrics, such as economic performance and demographic management.

c. Contribution-Based Return: Recommends that 60% of a state’s contribution to the central divisible pool should be allocated back to that state during the inter-state distribution.

Karnataka argues these adjustments would create a fairer system that continues to support less developed states while better recognising and rewarding states like itself that are key drivers of India’s economic growth.

B. Exclusion of Cesses and Surcharges:

Another major point of contention is the exclusion of revenue generated from central cesses and surcharges from the divisible pool shared with states. While these levies form a significant portion of the Centre’s revenue, they are currently retained entirely by the Union government. According to Chief Minister Siddaramaiah, the non-sharing of cesses and surcharges has resulted in an estimated loss of ₹53,359 crore for Karnataka between 2017-18 and 2024-25.

Proposed Solutions: To rectify this, Karnataka suggests:

a. Cap on Cesses/Surcharges: Proposes capping the collection from cesses and surcharges at 5% of the Centre’s gross tax revenue.

b. Inclusion of Excess: Recommends that any revenue collected from cesses and surcharges above this 5% cap should be included in the divisible pool shared with states.

c. Constitutional Amendment: This suggests amending the Constitution to mandate the inclusion of all non-tax revenues of the Centre into the divisible pool.

C. Issues Related to GST Compensation: Regarding the Goods and Services Tax (GST), Karnataka has raised concerns about the cessation of GST compensation. Mr. Siddaramaiah argued that although the Centre stopped providing compensation to states in July 2022 (intended to offset revenue losses from GST implementation), it continues to collect the GST Compensation Cess until 2026.

Proposed Solutions: Instead of this arrangement, Karnataka proposes:

a. State-Level Levy: This suggests that the Centre should permit states to levy an additional State GST (SGST) component to compensate for the revenue shortfall resulting from the end of the compensation period.

b. Higher GST Share: Furthermore, Basavaraj Rayareddy, the Chief Minister’s economic advisor, has expressed the view that states should fundamentally receive a larger share of the total GST collected, suggesting a benchmark of at least 60%.

2. TAMIL NADU’s Stand: Devolution, Demographics, & Disasters.

With 4% of the country’s land area and 6% of the population, Tamil Nadu contributes around 9.21% to the national GDP. The state is India’s second-largest state economy, with a GSDP of ₹27.22 trillion (approx. US$320 billion) by the end of 2023. Key growth drivers include manufacturing, IT, and services. As a highly industrialised state, it has the highest number of factories in India, and manufacturing comprises nearly one-third of its economy. Tamil Nadu’s per capita income was 171% of the national average in 2023–24.

Chennai, the capital, is a major economic hub known as “India’s health capital” (medical tourism) and the “Detroit of India” (automobile industry). It also has strong software services, electronics, healthcare, and finance sectors.

As a major economic contributor facing specific challenges, Tamil Nadu has raised proposals and concerns about central fund distribution and the Finance Commission’s framework.

A. Recommendations on Tax Devolution and Distribution Formula:

Tamil Nadu seeks significant changes both in the overall share of central taxes given to states and in the formula used to divide this share among them:

a. Increased State Share (Vertical Devolution): The state strongly advocates for increasing the total share of central tax revenue devolved to all states from the current 41% to 50%.

b. Changes to Inter-State Distribution Formula (Horizontal Devolution):

• Population Criterion: Joining the chorus of southern states, Tamil Nadu argues for using the 1971 Census data as the base for the population criterion instead of the 2011 Census used by the 15th FC. It contends that using the 2011 data unfairly penalises the state for its successful efforts in controlling population growth over the decades.
• Demographic Performance: To better reward states for effective population management, Tamil Nadu recommends raising the weightage for the ‘demographic performance’ criterion significantly, from 12.5% to 20%.
• GDP Contribution: Aligning with some other states, Tamil Nadu suggests introducing a new criterion into the formula that recognises a state’s contribution to the country’s GDP, aiming for a distribution that reflects economic contribution.
• Income Distance: The state proposes reducing the weightage given to the ‘income distance’ criterion (which benefits states with lower per capita income) from the current 45% down to 35%, seeking a more balanced distribution approach.

B. Funding for the Needs of an Ageing Population

Tamil Nadu draws attention to its specific demographic situation. According to the Sample Registration System (SRS) Statistical Report 2023, Tamil Nadu has the second-highest proportion of elderly people in its population, at 14%, after Kerala, which has 15.1%. In 2024, Tamil Nadu’s average population age is 36.4 years, about 9.5 years higher than that of states like Uttar Pradesh. This demographic profile significantly increases the state’s requirements for social security programs, healthcare services, and related support for older citizens. Consequently, Tamil Nadu has been actively requesting increased central grants to adequately meet these critical and growing needs.

A policy paper by the National Institute of Public Finance and Policy (NIPFP) emphasises the importance of taking the elderly population into account when designing formula-based intergovernmental fiscal transfers. The study suggests that including people aged 60 and above in the tax devolution formula could significantly change the way resources are distributed among states, giving more support to states like Tamil Nadu that have a higher proportion of elderly citizens.

C. Enhanced Support for Disaster Management

The state frequently endures the severe impacts of natural disasters such as cyclones, torrential rainfall, and major flooding events. These calamities cause extensive damage, affecting lives, property, livelihoods, and essential infrastructure. Tamil Nadu emphasises the urgent necessity for substantial central funds to effectively carry out relief operations and subsequent restoration efforts. The state argues that inadequate funding for disaster management limits its capacity to allocate resources efficiently towards other crucial developmental goals and welfare initiatives.

3. KERALA’s Push for Equitable Tax Allocation

From its origins as one of India’s resource-constrained regions when it achieved statehood in 1956, Kerala has undergone a remarkable transformation. Today, it ranks among the highest Indian states in per capita income and is often considered as the best place to achieve developed-country living standards shortly. Central to this significant progress has been the sustained high level of social expenditure undertaken by successive state governments over decades. This commitment is reflected in its globally recognised achievements in human development – often termed the “Kerala Model” – consistently leading the nation in literacy rates, healthcare access, and overall quality of life.

Widely marketed as “God’s Own Country,” Kerala’s current economy is significantly driven by its robust services sector. Key components of this sector include vibrant tourism, Information Technology, and trade, alongside substantial remittances from its large non-resident population. The state argues that its strong social development and key economic sectors are now under strain due to a declining share of central funds, pushing it to actively participate in discussions on fiscal federalism and fair resource distribution.

Kerala has expressed significant concerns about the methodology used for distributing central tax revenue among states, arguing that current formulas penalise its successful developmental and demographic management efforts. The state also highlights specific needs related to disaster management and its underlying fiscal situation.

A. Proposed Changes to the Tax Distribution Formula:

Kerala contends that the criteria used by the Finance Commissions, particularly income distance and the 2011 population data, have negatively impacted its share of central taxes. This is reflected in a steady decline in its devolution share, dropping from 3.8% under the 10th FC to 1.92% under the 15th FC.

To create a more equitable distribution that recognises its performance and specific challenges, Kerala proposes the following adjustments to the weightage given to different criteria:

a. Increase Demographic Performance Weightage: Raise the weightage for “demographic performance” (linked to fertility rate control) substantially, from the current 12.5% to 22.5%. This aims to reward states that have effectively managed population growth.

b. Introduce Population Density Criterion: Add a new parameter for “population density” with a 2.5% weightage. As Kerala ranks third nationally in population density, this would acknowledge the associated higher costs and fiscal pressures.

c. Reduce Area Criterion Weightage: Lower the weightage for the geographical “area” of a state from 15% (under the 15th FC) to 5%, arguing that this criterion disproportionately benefits larger states over smaller ones like Kerala.

d. Lower Forest Cover Weightage: Suggest reducing the weightage for “forest cover” from 10% to 7.5%, seeking a better balance between rewarding environmental conservation and addressing other pressing fiscal needs.

e. Reduce Income Distance Criterion Weightage: The state recommended that the per capita income distance weight be limited to 25 per cent.

f. Tax Devolution Floor Rate: The state demanded that the 16th Finance Commission should set a state-specific floor rate for Kerala and other similar states that have faced a continuous decline in their tax share. It advocated that this floor rate be determined as the average of the ratios from the previous three Finance Commission awards.

g. Senior Citizens and Fiscal Allocation: Kerala has the highest proportion of elderly people in its population. According to the UN Fund for Population Activities’ India Ageing Report 2023, about 22.8% of Kerala’s population is expected to be senior citizens by 2036, compared to the projected national average of 15%.

The State Committee of the Senior Citizens’ Friends Welfare Association has submitted a petition to the 16th Finance Commission, urging it to consider the state’s demographic profile, rising social welfare costs, and adult healthcare expenses when deciding the formula for fund allocation.

B. Need for Enhanced Disaster Management Funding:

Given its frequent exposure to natural calamities, particularly severe floods, landslides, coastal erosion, and extreme rainfall events in recent years, Kerala has requested specific financial support for disaster management. The state emphasises that it cannot independently muster the extensive resources required to address these recurring challenges.

Its specific requests include:

a. Increased SDRF Grants: A 100% increase in the grants allocated to its State Disaster Response Fund (SDRF).

b. Special Grant: A dedicated grant of ₹13,922 crore to specifically tackle the impacts of floods, coastal erosion, and other environmental vulnerabilities.

C. Enhanced Borrowing Rights:

Kerala highlighted the need for enhanced borrowing rights and criticised the Centre for limiting the state’s borrowing capacity. The state’s fiscal situation is marked by high revenue deficits. It struggles to generate sufficient non-tax revenue. As a result, Kerala relies heavily on transfers from the central government to meet its expenditure needs. This dependency is underscored by the fact that Kerala received the largest share of the post-devolution Revenue Deficit Grant among all states, as recommended by the 15th Finance Commission for the period 2020–21 to 2025–26.

D. Increase in the Share of Local Body Grants:

A policy paper by the Gulati Institute of Finance and Taxation (GIFT) suggests increasing the share of local body grants transferred to states so that they can carry out their basic responsibilities smoothly. This can be achieved by addressing the fiscal gap between their expenditure needs and available resources. 

Secondly, the Finance Commission should consider revising the criteria used to distribute the earmarked grants for local bodies among the states, going beyond parameters like population and area, and ensuring that the allocation is based on local needs, performance, and fiscal capacity.

4. ANDHRA PRADESH: Seeking Recovery After Bifurcation

Andhra Pradesh is a significant contributor to India’s economy. Often referred to as the “rice bowl” of India, the state is a major agricultural powerhouse, particularly in rice production. It also leads the country in aquaculture and is home to growing industries and bustling ports along its long coastline, which support vibrant trade and logistics. In recent years, Andhra Pradesh has actively pursued economic diversification and sustained growth through industrial expansion, large-scale infrastructure projects, and progress in renewable energy. The state has strategically leveraged its extensive coastline to bolster trade connectivity and attract investments. 

However, the state’s economic landscape and fiscal health were fundamentally reshaped by the 2014 bifurcation, which resulted in the loss of its established economic capital, Hyderabad, along with its thriving IT, pharmaceutical, and industrial base, to the new state of Telangana. Just from losing the assets of the institutions listed in Schedules IX and X of the AP Reorganisation Act, 2014, the State is estimated to have suffered Rs 1.3 lakh crore. While Visakhapatnam is developing as the state’s primary economic hub, attracting investment and driving growth, Andhra Pradesh still contends with significant challenges, including developmental lags in several backward districts and a relative scarcity of premier national educational and research institutions.  

A. Post-Bifurcation Difficulties:

This post-bifurcation reality has created substantial financial difficulties for the state, leading to specific concerns and requests directed towards the central government and the Finance Commission.

a. Escalating Debt Burden: The most urgent issue facing Andhra Pradesh is its soaring debt burden, which ranks among the highest in the country. The state’s debt stood at ₹97,000 crore in 2014, right after the bifurcation, and surged to ₹2.59 lakh crore by March 2019. This trend has only worsened in the following years. A major concern lies in the pattern of borrowing, especially between 2019 and 2024, where a considerable portion of borrowed funds was reportedly used to service existing debt rather than being invested in critical capital infrastructure for future growth. This has been further aggravated by inconsistent revenue growth and increasing committed expenditures on items like subsidies, government salaries, and interest payments. As per the Fiscal Health Index 2025, released by NITI Aayog for FY 2022–23, Andhra Pradesh is the only state with Zero Debt Sustainability. This means the state is unable to meet its debt obligations without external support—an alarming sign that could lead to deflation, harm its creditworthiness, reduce borrowing ability, and hamper overall economic growth. 

This fiscal strain is also reflected in development expenditure. The allocation for asset creation reportedly fell to just 3.5% of the state budget in 2022–23, the lowest in the country. In response, Andhra Pradesh has made a formal appeal to the Finance Commission, seeking substantial debt relief to navigate the crisis. 

b. Persistent Demand for Special Category Status (SCS): Directly linked to the economic consequences of losing Hyderabad, Andhra Pradesh maintains a strong and persistent demand for the granting of Special Category Status (SCS). The state government argues that SCS is crucial compensation for the significant loss of revenue and reduced fiscal capacity resulting from the bifurcation. Attaining SCS would unlock critical financial benefits, including a favourable 90:10 funding pattern for Centrally Sponsored Schemes, enhanced central grants, attractive tax concessions to spur investment, and access to specific debt relief programs. This issue is likely to remain in the news in the coming years, as N. Chandrababu Naidu, the Telugu Desam Party (TDP) chief and current Chief Minister, is an ally of the Bharatiya Janata Party (BJP) and is expected to push for this status through political negotiations.

B. Objections to Population Parameter:

Andhra Pradesh, like other southern states, criticises the Finance Commission’s shift to using 2011 Census data instead of the 1971 benchmark. State leaders argue that this penalises states with successful population control, as seen in Andhra’s low total fertility rate of around 1.5%. As a result, the state’s share of central taxes has steadily declined—from 7.701% (11th FC) to 4.305% (14th FC), and further to 4.111% (15th FC). Even the slight drop between the 14th and 15th Commissions led to an estimated annual revenue loss of ₹1,521 crore, according to former Finance Minister Yanamala Ramakrishnudu. This has led to growing discontent over what is perceived as punitive treatment of states that performed well on demographic goals.

5. TELANGANA: Young State, Strong Economy, Shared Concerns

Telangana, which became India’s newest state on June 2, 2014, after separating from Andhra Pradesh, has demonstrated impressive economic performance since its formation. In 2022–23, the state recorded a Gross State Domestic Product (GSDP) of ₹7,26,707 crore at constant prices, contributing 4.5% to India’s total GDP of ₹1,60,06,425 crore. Telangana’s growth rate of 7.8% outpaced the national average of 7.2%, highlighting its strong economic momentum. While agriculture remains important, especially for the large rural population (over 60%), the services sector is the main driver of Telangana’s economy. 

Its capital, Hyderabad, has solidified its position as a major hub for Information Technology (IT/ITeS) and pharmaceuticals. The state also boasts a diverse industrial base covering textiles, leather, minerals, food processing, and advanced sectors like nanotechnology and biotechnology.

Despite its economic strengths, Telangana faces challenges and has raised specific concerns regarding its financial relationship with the central government:

A. Concerns Over Central Tax Sharing: Telangana has expressed dissatisfaction with how central tax revenues are shared and distributed:

a. Reduced Share and Revenue Loss: Under the 15th FC’s recommendations, the state saw its share in the central tax pool decrease (from 2.437% to 2.133%). According to the Telangana Socio-Economic Outlook 2021, this reduction is estimated to result in a revenue loss of ₹14,151 crore for the state over the next five years.

b. Demand for Higher State Share: Telangana strongly advocates increasing the overall share of central taxes given to all states from the current 41% to 50%.

c. Issue with Cesses and Surcharges: The state criticises the central government’s increasing use of cesses and surcharges. Since the revenue from these is not part of the divisible pool shared with states, Telangana argues that the actual share states receive effectively drops to around 30%, significantly less than the intended 41%.

d. Proposed Changes to Distribution Formula: To ensure a fairer distribution among states, Telangana suggests modifying the criteria used:

• Give significantly more weight (increase from 2.5% to 10%) to a state’s efficiency in collecting its taxes, thereby rewarding fiscally responsible states.
• Move away from relying heavily on the ‘Per Capita Income Distance’ criterion (which primarily benefits states with lower income).
• Introduce or significantly increase (proposing 50%) the weightage given to a state’s contribution to the national GDP.

B. Challenges with State Debt:

Telangana is grappling with a significant state debt burden:

a. High Debt Levels: The state’s outstanding debt is over 35% of its Gross State Domestic Product (GSDP), exceeding the limit of approximately 29.70% recommended by the 15th Finance Commission. The Comptroller and Auditor General of India (CAG), in its 2022-23 report, highlighted concerns about Telangana’s financial health, pointing to rising liabilities, potentially unsustainable debt repayments, and the increasing cost of servicing the debt. 

The state government faces the task of repaying a massive amount – over ₹2.5 lakh crore (principal and interest) – by the year 2032-33, largely due to market borrowings made by the previous state government (the BRS party, which held power until late 2023).

b. Request for Central Support: Faced with this substantial repayment obligation inherited from the past administration, the current Telangana government has made strong requests to the central government for additional financial assistance or special permission to restructure its debt (reschedule payments) to ease the immediate burden.

 TABLE: Summary of Concerns Raised by Southern States Regarding Finance Commission Transfers

Concerns & Grievances of States	Karnataka	Tamil Nadu	Kerala	Andhra Pradesh	Telangana
1. Declining Share in Central Tax Devolution	Reduction in share under 15th FC led to a projected loss of ₹68,275 crore (2021–26). Non-approval of state-specific grants worth ₹11,495 crore worsened losses, totaling ₹79,770 crore.	Seeks to increase the total share of central tax revenue devolved to states from 41% to 50%.	Notes continuous decline—from 3.8% under the 10th FC to 1.92% under the 15th FC. Requests a floor rate based on the average ratios of the previous three Finance Commissions.	Share declined from 7.701% (11th FC) to 4.305% (14th FC) and 4.111% (15th FC); estimated annual revenue loss of ₹1,521 crore.	Share reduced from 2.437% to 2.133% under 15th FC; estimated loss of ₹14,151 crore.
2. Population Parameter (Use of 2011 Census)	Opposes the use of the 2011 Census; seeks a reward for demographic management efficiency.	Wants 1971 Census data as base; argues 2011 data penalises successful population control; wants higher weightage (20%) for demographic performance.	Opposes 2011 Census; seeks an increase in “demographic performance” weightage from 12.5% to 22.5%.	Criticises the 2011 Census; claims it penalises states with low fertility rates (~1.5%).	Shares objection; seeks recognition for demographic efficiency.
3. Overweighting of Income Distance Criterion	Proposes reducing the income distance weight from 45% to 25%.	Suggests lowering the income distance weight to 35%.	Recommends limiting the per capita income distance weight to 25%.	—	Recommends moving away from the “per capita income distance” criterion.
4. Exclusion of Cesses and Surcharges from Divisible Pool	Objects to exclusion; loss of ₹53,359 crore (2017–18 to 2024–25). Proposes 5% cap and inclusion of excess into the divisible pool; seeks a constitutional amendment to mandate inclusion of all non-tax revenue.	—	—	—	Criticises growing use of cesses and surcharges; says it reduces the effective share to about 30%.
5. Recognition of Efficiency & Economic Contribution	Suggests 60% of a state’s contribution to central taxes be returned; increase the weight on efficiency and economic performance.	Recommends introducing GDP contribution as a formula criterion.	Seeks balance between rewarding efficiency and addressing fiscal needs; wants state-specific floor rate.	—	Suggests 50% weight to GDP contribution and increase tax-efficiency weight from 2.5% to 10%.
6. GST Compensation Issues	Objects to cessation of GST compensation; proposes additional SGST levy and 60% share in total GST.	—	—	—	—
7. Borrowing Restrictions / Fiscal Flexibility	—	—	Requests enhanced borrowing rights; criticises limits on state borrowing capacity.	Requests substantial debt relief; cites unsustainable debt burden (₹97,000 crore in 2014 → ₹2.59 lakh crore by 2019).	Seeks permission to restructure and reschedule debt repayments (₹2.5 lakh crore by 2032–33).
8. Disaster Management Funding	—	Calls for higher central funds for flood and cyclone relief; says inadequate disaster aid hampers development.	Requests 100% increase in SDRF allocation and ₹13,922 crore special grant for floods, coastal erosion, and related impacts.	—	—
9. Post-Bifurcation / Structural Fiscal Losses	—	—	—	Seeks compensation for post-2014 bifurcation losses; demands Special Category Status; notes loss of ₹1.3 lakh crore due to transfer of assets under AP Reorganisation Act.	—
10. Ageing Population & Social Security Needs	—	Notes second-highest elderly population; seeks increased grants for elderly care, healthcare, and social security.	Notes the highest elderly population; urges consideration of the state’s demographics, social welfare, and healthcare costs in fund allocation	—	—

The concerns raised by these five states reflect broader questions about equity and fairness within India’s fiscal federal framework. Although these states have emerged as key drivers of economic growth, social development, and innovation, they express dissatisfaction with the Centre’s current patterns of resource allocation—particularly regarding the Finance Commission’s devolution formula, the exclusion of cesses and surcharges, and the GST compensation mechanisms.

It is important to examine the extent to which these demands and grievances are justified and whether they are entirely valid. The next article will explore expert perspectives on these issues in greater detail.

Ishant Deshmukh, Research Assistant, JP-SSSC

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