Southern states, UP among losers of divisible pool share

SANGEETHA G CHENNAI, FEB. 19

Changes in criteria made by the 15th Finance Commission will see the share of 10 states in the divisible pool of gross tax revenues declining during the period FY 2022-26 from FY 2016-20.

Among the 10 states, Karnataka will be the biggest loser, followed by Kerala, Andhra Pradesh, Telangana, Uttar Pradesh, Assam and Odisha. Tamil Nadu, too, is there in the losers' list.

The loss has been due to the changes in computation of the income distance and tax effort criteria, says rating agency Icra. For the award period FY2022-26, income distance and tax effort have been calculated based on data for FY2017-19, as compared to FY2016-18 for FY2021.

"The Finance Commission had addressed one of the concerns of the south Indian states and a few others regarding the weight given to 'population'

by introducing the criterion 'demographic performance'. We had hoped that our share in the divisible pool would go up because of this. However, it has come down and this is because of the criterion 'income distance'," Thomas Issac, finance minister of Kerala, told Financial Chronicle.

The 15th Finance Commission was required to use population as per the 2011 Census. This would have put some of the states that have worked on their fertility rate at a disadvantage. However, the Finance Commission also used demographic performance with a weight of 12.5 per cent to

reward those states that have performed well on demographic management.

Tax Effort also was a new criterion introduced by the 15th FC. It is measurable by the ratio of three-year average of per capita own tax revenues and per capita gross state domestic production (GSDP). This criterion has 2.5 per cent weight.

Maharashtra, meanwhile, is the biggest gainer in terms of share in divisible pool of taxes during FY2022-26, relative to FY2016-20. The other states which have increased their share include Gujarat, Chhattisgarh, Arunachal Pradesh, Bihar and Rajasthan.