Union’s ₹1.73-Lakh Crore Tax Devolution: South Gets Only 16%, Sparks Debate

On January 10, 2025, the Union Government of India announced the release of ₹1,73,030 crore as tax devolution to state governments, aiming to stimulate capital expenditure and support development across the nation. While this move is vital for state-level infrastructure and welfare programs, the allocation methodology has raised eyebrows, particularly in South India.

The Distribution Disparity

According to official data:

• South India (5 states, 3 UTs, 25 crore population) received only 16% of the total funds.
• North India (23 states, 5 UTs, 1 NCT, 115 crore population) received a staggering 84%.

This imbalance has sparked debates about fairness in resource allocation, considering South India’s significant contribution to the nation’s GDP, tax revenue, and population control efforts. Here are the key points fueling this debate:

1. Tax Contribution vs. Allocation: Southern states contribute disproportionately high tax revenues compared to their northern counterparts. Yet, they receive a smaller share of funds, which many argue penalizes them for their economic discipline and effective governance.
2. Population-Based Allocation: The devolution formula heavily weights population, favoring densely populated regions. Critics argue this approach overlooks states’ efforts to control population growth and improve living standards.
3. Development Disparities: Southern states generally exhibit better infrastructure, literacy, and healthcare indicators, partly due to prudent investments. However, underfunding these regions could hinder their progress and exacerbate regional inequalities.

Beyond the North-South Divide

The devolution percentages also prompt questions about allocations to other regions:

• Northeast India: Historically underfunded, the Northeast often struggles with infrastructure gaps despite strategic importance.
• Western and Eastern India: States like Gujarat, Maharashtra, Odisha, and West Bengal—major contributors to the GDP—require clarity on their allocations.

Concerns About Political and Cultural Bias

Critics allege that central funding policies reflect political favoritism. For instance:

• Language and Cultural Support: More funds are allocated for Hindi and Sanskrit than for South Indian and regional languages.
• Disaster Response: Natural disaster relief often seems uneven, with announcements favoring certain states over others.

Government’s Defense

The Union Government defends its approach, citing the recommendations of the Finance Commission. They argue that:

• Highly populated states need more resources for infrastructure and welfare.
• The allocation formula includes development indicators but cannot ignore demographic realities.
• Local governments must ensure efficient utilization of allocated funds.

A Call for Reform

Southern leaders and policymakers demand:

1. Revised Devolution Formula: Incorporate performance indicators, such as tax contribution and development achievements, alongside population.
2. Equal Support for Regional Development: Allocate resources to foster equitable growth across all states.
3. Accountability in Fund Usage: Monitor state-level implementation to ensure funds are used effectively.

Conclusion: Let’s Unite, Not Divide

India’s strength lies in its unity and diversity. While debates about regional imbalances are valid, they should not fuel divisiveness. Instead, they should drive constructive reforms that reward efficiency, encourage equity, and ensure that no state or region feels marginalized.

The need of the hour is a balanced approach that respects India’s federal structure while fostering national growth. As India progresses toward becoming a global economic powerhouse, fair and transparent resource allocation will play a pivotal role in achieving inclusive development.

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