KNOW MORE OF FUNDING THE STATES

• https://www.thehindu.com/news/national/are-states-getting-funds-they-are-entitled-from-the-centre/article67897234.ece
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• https://www.youtube.com/shorts/EKR-oFqZaeY
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• The Southern states—specifically Karnataka, Kerala, Tamil Nadu, and Telangana—have been the most vocal critics of the current funding structure. They argue that the existing system penalises them for their economic success and effective population control.

The "Vocal" States and Their Grievances

• These states have organised high-profile protests and conclaves, demanding a "fairer deal". Their primary arguments include: [1, 2]
  • The "Performance Penalty": Southern states achieved population stabilisation decades ago. Since tax devolution relies heavily on population figures (Census 2011), they feel they lose out on funds compared to northern states with higher growth rates.
  • High Contribution, Low Returns: Karnataka and Tamil Nadu point out that for every ₹100 they contribute in taxes to the Centre, they receive back significantly less (sometimes as low as ₹15–₹30) compared to states like Bihar or Uttar Pradesh.
  • Shrinking Autonomy: Post-GST, these industrialised states feel they have lost the power to raise their own revenues while being burdened with expensive welfare schemes and central "mandates"
  • The 16th Finance Commission's Latest Stance (2026–31)
    The 16th Finance Commission (16th FC), chaired by Arvind Panagariya, tabled its report in February 2026. It attempted to strike a balance between equity and rewarding performance: 
  • Vertical Devolution (The 41% Cap): The Commission rejected the states' demand to increase their share to 50%, maintaining it at 41%. It cited the Union’s increasing needs for defence and national infrastructure as the reason for keeping more revenue at the Centre.
  • The "Contribution to GDP" Criterion: In a significant win for industrialised states, the 16th FC introduced a new 10% weightage for "Contribution to GDP" in the horizontal distribution formula. This specifically rewards states that drive the national economy.
  • The "Grand Bargain" Proposal: While it didn't formally cap cesses, the Commission proposed a "grand bargain" where the Centre would merge major cesses into the shareable tax pool in exchange for states accepting a slightly lower, but more predictable, percentage.
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  • Grants & Discipline: The Commission discontinued "Revenue Deficit Grants," arguing that states must focus on rationalising their own subsidies (like unconditional cash transfers) and improving fiscal discipline mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm