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UP Finance Minister Flags Concerns Over 16th Finance Commission's Devolution Formula
- •Uttar Pradesh Finance Minister Suresh Kumar Khanna expressed concerns that the 16th Finance Commission's devolution formula gives excessive weight to GSDP over a state's needs, potentially leading to lower transfers for high-population states.
- •Khanna highlighted that the new criteria prioritize contribution to GDP, which could benefit states with higher GSDP while disadvantaging populous states like Uttar Pradesh, Bihar, Rajasthan, and Madhya Pradesh.
- •He noted that the weight assigned to contribution to GDP has increased to 10%, replacing the earlier tax-effort criterion, and the weight of income distance has been reduced from 45% to 42.5%.
- •Khanna advocated for a consistent, predictable, and fair fiscal framework where transfers balance efficiency and equity to prevent weaker states from falling behind.
- •He emphasized that states are crucial drivers of India's economic development and require adequate, predictable resources to manage essential services like schools, hospitals, and infrastructure.
Key Questions Answered
Uttar Pradesh Finance Minister Suresh Kumar Khanna flagged that the 16th Finance Commission's devolution formula gives excessive weight to GSDP contribution rather than a state's need. He noted that this shifts focus from equity to output, potentially reducing fiscal transfers for high-population states like Uttar Pradesh, Bihar, Rajasthan, and Madhya Pradesh.
The 16th Finance Commission increased the weight assigned to a state's contribution to GDP to 10 percent, replacing the earlier tax-effort criterion. Concurrently, it reduced the weight of the income distance criterion from 45 percent down to 42.5 percent.
Southern and western states emerged as the primary beneficiaries under the revised framework, which rewards GDP contribution. Karnataka secured the largest gains with a 0.41 percent share of the divisible pool, followed by Kerala, Gujarat, Haryana, Punjab, and Maharashtra receiving significant share increases.
