Why the South keeps pulling ahead

Beyond the increasing complaints about their falling share of central tax revenues, the experience of southern states holds a lesson for the poorer regions wishing to bridge the gap: Higher per-capita income is linked to lower population growth, while greater development tends to lead to increased investment in health and education

- SHIKHA CHATURVEDI

Kerala's Finance Minister K N Balagopal recently argued that successive Finance Commissions have chipped away at the state’s share of central tax devolution and grants, a complaint echoed across southern states.

The headline figures lend weight to that grievance: The combined share of the five southern states in the total central tax pool — or devolution — slipped from 19 per cent in financial year 2010-11 (FY11) to 16 percent in FY26; Kerala's share fell from 2.4 per cent to 1.9 per cent over this period.

To be sure, the total pool of devolution itself came down in proportion to central taxes as the Union government resorted to cess and surcharge.

Politically, states in general also argued that they lost sovereignty on revenue matters due to the introduction of the goods and services tax (GST). This complaint was shriller in southern states since GST favours poor states — the tax is ‘destination based’, meaning revenue from it goes to the consuming state rather than the producing one.

But the grievances cannot be read in isolation from ‘per-person fiscal capacity’. On a per capita basis, the South remains far better resourced. In FY26 (Budget Estimates), the total tax revenue generated by each individual is projected at roughly 42,202 for Kerala, 42,893 for Tamil Nadu, and %42,697 for Karnataka, compared with 19,987 for Bihar and 27,554 for Uttar Pradesh. (This article takes Bihar and UP into account for purposes of comparison because they are the poorest states in terms of per capita income.)

This gap widens more when it comes to expenditure per capita: Kerala is at %86,854, Karnataka 50,788, Tamil Nadu %62,914, versus Bihar Rs 24,301 and UP 233,627. Kerala's ‘own-tax’ revenue share — the amount of tax it pays into the central kitty — is around 60 percent of what it receives in revenue; the southern average is roughly 62 per cent, while several poorer states report their own-tax shares in the range of 20-40 per cent.