In response to calls for an economic alliance of southern states for equal resource distribution, chief ministers from states like Karnataka, Kerala, and Tamil Nadu expressed their discontent with the current system for distributing resources among states. They argue that it puts states like Karnataka at a disadvantage while favoring states in the North with uncontrolled population growth. The article argues that instead of focusing on the horizontal distribution of tax resources, the states should advocate for an enlargement of the divisible pool by calling for a curtailment in Union cesses and surcharges. The states’ concerns are valid, as all states face a resource-expenditure imbalance due to the constitutional design, which allocates tax revenue and expenditure responsibilities to the Union and states based on comparative advantage. However, the introduction of the Goods and Services Tax (GST) has also curtailed states’ financial autonomy. The root of the problem lies in the fact that the divisible pool has not kept pace with the gross tax revenues of the Union, primarily due to the ever-increasing cesses and surcharges levied by the Union. The proposed solutions to increase the devolution amount or share from the existing divisible pool may change how the pie is divided rather than increasing its overall size. The article suggests that the states should demand a larger divisible pool by objectively accounting for the existing cesses and surcharges in the divisible pool or increasing the resource-sharing ratio from the current 41%. They should also demand that the Union gradually rationalize various cesses and surcharges and constitutionally challenge the proliferation of cesses and surcharges.
The North-South divide: How unequal resource distribution exacerbates disparities
