Karnataka CM meets 16th Finance Commission Chairman, seeks balanced approach to tax devolution

Bengaluru, June 13 Karnataka Chief Minister Siddaramaiah met with the Chairman of the 16th Finance Commission, Dr Arvind Panagariya, and the members of the Commission on Friday in New Delhi to present the State’s concerns, expectations, and proposals regarding tax devolution and transfers to the State from the Centre.

The meeting was also attended by Basavaraja Rayareddy, Economic Advisor to the Chief Minister, along with the Chief Secretary, senior officers from the Chief Minister’s Office and the Finance Department.

The Chief Minister emphasised that growth and equity must coexist, and that a strong Karnataka — supported by fair fiscal devolution — is essential for a strong India.

“Karnataka’s fiscal strength fuels national growth. It is time to ensure that growth is not penalised but rewarded. We urge the Commission to adopt a balanced, forward-looking approach to devolution,” CM stated.

During the interaction, the CM submitted the additional memorandum, articulating the State’s vision for a fair, transparent, and growth-supportive fiscal federal structure.

Addressing the Commission, the Chief Minister emphasised Karnataka’s pivotal role in India’s economic growth — contributing nearly 8.7 per cent of the national GDP with just 5 per cent of the population and ranking second in the country in GST collections.

Despite this contribution, the Chief Minister highlighted a stark imbalance in fiscal returns: for every rupee Karnataka contributes to Union taxes, it receives only 15 paise in return. He pointed out that the reduction in Karnataka’s share under the 15th Finance Commission — from 4.713 per cent to 3.647 per cent — resulted in a cumulative loss of over Rs 80,000 crore during the award period.

In its main memorandum, Karnataka has proposed that the share of taxes devolved to states (vertical devolution) be increased to at least 50 per cent, and that cesses and surcharges be capped at 5 per cent. The State also recommended including Union non-tax revenues in the divisible pool, he said.

For sharing funds among states (horizontal devolution), Karnataka suggested that each state retain about 60 per cent of what it contributes, with 40 per cent going to less-developed states — ensuring both growth and equity, the CM stated.

To make the formula fairer, Karnataka has proposed reducing the weight of the income-distance criterion and giving more weight to a state’s economic contribution, so that high-performing states are not penalised, but encouraged, he said.

In its additional memorandum, Karnataka has called for critical reforms to make the fiscal devolution system more growth-oriented, predictable, and fair. The State has highlighted three key issues such as the growing disparities in per-capita devolution, the flawed design of Revenue Deficit Grants, and the unpredictable nature of State-Specific Grants.

Karnataka's per capita devolution has dropped significantly — from 95 per cent to 73 per cent of the national average between the 14th and 15th Finance Commissions, despite increased GDP contribution, Siddaramaiah noted.

Karnataka emphasised that while equity remains a key principle, it must be implemented in a time-bound and outcome-oriented manner, without disadvantaging states that demonstrate strong economic performance and sound fiscal management. Therefore, Karnataka has proposed that the income-distance weightage be reduced by 20 per cent and the same be reallocated to reflect states’ fiscal contribution, as measured by their share in national GDP, he stated.

The CM questioned the effectiveness of Revenue Deficit Grants. Revenue Deficit Grants in their current form, citing persistent deficits in beneficiary states and proposing Revenue Deficit Grants redistribution through horizontal devolution using the same formula to all states.

“Our government has been guided by Gandhiji’s philosophy of Sarvodaya, emphasising welfare for all.

Karnataka has also recommended replacing discretionary special grants with a formula-based allocation of 0.3 per cent of Gross Union Receipts. However, the state has reiterated its request for grants for Bengaluru and other critical projects if the Commission continues with such provisions, he said.

The CM sought support for Rs 1.15 lakh crore investment to strengthen Bengaluru’s infrastructure, given its major role in Karnataka’s economy.

He also stressed the need to bridge regional gaps in Kalyana-Karnataka and Malnad, which face low incomes and poor infrastructure.

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