Maha demands 50% share of divisible tax pool

A memorandum of demands was presented to the 16th Finance Commission by chief minister Devendra Fadnavis at a meeting in Mumbai on Thursday

MUMBAI: Maharashtra has joined the growing demand for an increase in the state’s share of the divisible tax pool, to 50%, from the current 41%. A memorandum of demands was presented to the 16th Finance Commission by chief minister Devendra Fadnavis at a meeting in Mumbai on Thursday. During its presentation, the state said performing states deserve a higher allocation from the divisible pool.

Maha demands 50% share of divisible tax pool

The demand is on the lines of Gujarat, Haryana, Tamil Nadu, Karnataka, Telangana, Kerala and Odisha, among others, said Arvind Panagariya, chairperson of the commission, on Thursday.

The divisible tax pool comprises taxes collected by the central government and shared between the centre and the states. Surcharges and cesses are not part of the pool.

Maharashtra has also demanded special grants worth ₹1.28 lakh crore for six projects. These include developing the Mumbai Metropolitan Region (MMR) as a growth hub, interlinking of rivers, strengthening prison infrastructure, hostels for post-graduate medical students, construction of a new Bombay High Court complex in Bandra, and promoting eco-tourism in Maharashtra.

“On vertical devolution of funds, the state government suggested an increase in the state’s share, from the current 41% to 50%, a demand made by most other states… It was emphasised that performance ought to be given greater importance than in the past,” Panagariya said.

The state also proposed a change in the criteria that determine the share of taxes to be distributed among the states. It suggested that the state’s incremental contribution to the country’s GDP in the last ten years should be one of the criteria under. It proposed a weightage of 2.5%.

In response, Panagariya said, “We are open to all suggestions and recognise that there is some legitimacy to the demands that performance should be given some consideration. Whether or not such consideration will be given will depend on the commission when it comes up with its recommendations.”

The Maharashtra government also stressed that the current approach of giving combined weightage to rural and urban populations must be revisited in the context of rapid urbanisation. At present, the weightage to population is 15%, which the state suggested, be increased to 20%. “We request the finance commission to consider giving separate weightage to the rural and urban populations of the states and propose a weightage of 10% each for rural and urban populations in the horizontal devolution formula,” said the memorandum.

Panagariya said the demands made by Maharashtra are legitimate as it is one of the few states run conservatively. “Its tax-to-GDP ratio is 20% lower than the average state. Many states have a tax-to-GDP ratio of 30%. The state’s fiscal deficit is also within 3% of the gross state domestic product (GSDP), with the provision of an additional .5% with certain riders,” he pointed out.

The state also sought special grants worth over ₹1.28 lakh crore from the finance commission. It proposed a sum of ₹50,000 crore as special grants for implementing NITI Ayog’s economic masterplan for the MMR. The plan prepared aims to propel Maharashtra into a USD300-billion economy by 2023 and USD1.5-trillion economy by 2047,” the memorandum said.

It sought another ₹67,051 crore for linking projects of four rivers — Wainganga-Nalganga, Nar-Par-Girna, Damanganga-Vaitarna-Godavari and Damanganga-Ekdare-Godavari.

It further sought ₹3,750 crore for the construction of a new complex of the Bombay High Court in Bandra, saying that strengthening the judiciary in the state would benefit commerce in the entire country as Mumbai is India’s financial hub.

The state also solicited one-time support of ₹6,500 crore for modernisation of prisons in Maharashtra.

It also sought ₹800 crore and ₹130 crore, respectively, for the construction of hostels for medical students and the promotion of ecotourism in the backward districts of Vidarbha. “Gap analysis shows a 40% gap of hostel facilities for post-graduate students. Additional 2,500 rooms need to be constructed quickly in different medical colleges,” the memorandum revealed.

‘Rework tax pool’

The state pointed out flaws in the system that determines the constitution of the divisive pool, underlining that Maharashtra receives less than it deserves. A major reason is the exclusion of cesses and surcharges in the tax pool along with non-tax revenue such as dividends, profits, interest receipts, fees, royalty, rent and other receipts, it said.

It has sought to merge cesses and surcharges with the principal taxes, and including non-tax revenue in the divisible pool to ensure adequate transfer of financial resources from the central government to the states.