HOW TO EVALUATE THE OMISSIONS OF THE COMMISSION

It's essential to understand why the 16th Finance Commission's devolution formula does not help the southern states. All states must strive to report their economic data more precisely

- S CHANDRASEKHAR

THE sharing of the divisible pool of taxes between the Union government and states is a zero-sum gameif the Union gets even a bit more, the states would get that much less; within the states' share, if one gets more, others would get less. Hence the formula for the sharing or devolution is extremely consequential.

Every five years, the Union Finance Commission (FC), a constitutionally mandated body, decides how this pool, which includes the income tax we pay, is divided. The 16th FC, whose report was tabled in Parliament along with the Union Budget, has decided that for the period 2026-31, the states will get 41 percent the same as what the 15th FC recommended and slightly lower than the 14th FC's 42 percent, which had raised the states' share substantially from 32 percent.

The question is how this 41 percent will be distributed between the states.

Given the contentious stakes, every state advocates its own formula for determination of the share. Let's see who the latest Union FC's formula helps more.

One important criterion used by successive FCs to arrive at the states' individual shares is income distance. This ensures that the richer states get smaller shares of the pie. Understandably, the states that had a higher per-capita income were of the view that, as engines of growth for the Indian economy, they deserve a larger portion.

The 16th FC reduced the weight given to the income distance from 45 percent awarded by the 15th FC to 42.5 percent. It also reduced the weight given to the area of the state from 15 percent to 10 percent, but increased the weight given to the population from 15 percent to 17.5 percent. Other than the increase in the population weight, the other two changes would work in favour of most southern states (except Karnataka), since they are smaller.