Higher tax share for south states, Hindi heartland states see dip, Pg1

Key Highlights:

• The 16th Finance Commission has recommended an increased tax allocation for the five southern states (Karnataka, Kerala, Andhra Pradesh, Telangana, and Tamil Nadu).
• Hindi heartland states including Uttar Pradesh, Bihar, Madhya Pradesh, Chhattisgarh, and Rajasthan are expected to see a decline in their tax share.
• Southern states will receive an additional Rs 18,330 crore from the divisible tax pool of Rs 15.26 lakh crore in 2026-27.
• The Finance Minister Nirmala Sitharaman announced the government's acceptance of the 16th Finance Commission's recommendations, retaining states' share at 41% of the net proceeds of Union taxes.

Detailed Insights:

• The increase in allocation for southern states is attributed to the introduction of 'contribution to GDP' as a new criterion with 10% weightage and a reduction in the weightage for the 'area' criterion from 15% to 10%.
• The five Hindi heartland states are projected to experience an aggregate decline of Rs 17,338.28 crore, with Madhya Pradesh facing the largest decrease.
• States like Gujarat, Haryana, Punjab, Assam, Maharashtra, Himachal Pradesh, Mizoram, Jharkhand, and Uttarakhand are also set to benefit from the 16th Finance Commission’s recommendations.
• The change in states' shares is due to a revised formula based on six criteria: population (17.5%), demographic performance (10%), area (10%), forest (10%), per capita GSDP distance (42.5%), and contributions to GDP (10%).

Key Concepts Involved:

• Divisible Pool of Taxes: The portion of central government tax revenue that is distributed among states.
• Finance Commission: A constitutional body that recommends principles governing the distribution of tax revenues between the Centre and the States.
• Horizontal Devolution: The distribution of resources among different states based on a set of criteria.