Piyush Goyal Criticizes States Seeking Central Funds Based on Tax Contributions
"Union Minister Piyush Goyal criticizes states like Karnataka, Tamil Nadu, and Telangana for demanding central funds based on tax contributions, calling it 'petty thinking.' He emphasizes balanced national development and the Finance Commission's role in fund allocation."
Mumbai: Union Commerce Minister Piyush Goyal has strongly opposed the demands of certain states that seek central funds in proportion to their tax contributions, calling such an approach “petty thinking and unfortunate.”
His remarks come amid growing tensions between the Centre and states like Karnataka, Tamil Nadu, and Telangana over revenue allocation.
Speaking at the ‘Rashtriya Ekatmata Yatra 2025’ in Mumbai, an event organized by the Akhil Bharatiya Vidyarthi Parishad and the Students Experience in Inter-State Living initiative, Goyal reaffirmed the central government’s commitment to balanced national development.
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He emphasized Prime Minister Narendra Modi’s vision, stating that India’s progress depends on the upliftment of the Northeast and eastern states, including Bihar, West Bengal, Odisha, and Jharkhand.
Goyal’s Criticism of State Demands
During his speech, Goyal addressed the ongoing debate over revenue allocation, targeting states that argue they should receive funds based on their tax contributions. “There cannot be a more petty way of thinking than this. If we follow such a principle, it will disrupt the unity of the country. Development must be inclusive and cater to all regions,” he asserted.
His remarks were seen as a response to recent demands from Karnataka, Tamil Nadu, and Telangana, where leaders have urged the Centre to allocate funds proportional to their tax revenues. In an indirect reference to the previous Maha Vikas Aghadi (MVA) government in Maharashtra, Goyal criticized past leaders for making similar demands.
“Some leaders of the previous government, which lasted for two and a half years, used to calculate the tax paid by Mumbai and Maharashtra and demand that they should get back the same amount in Central funds,” he said.
However, he reassured the audience that the current BJP-led Maharashtra government is aligned with national priorities and sensitive to the needs of Northeast India.
Understanding Tax Devolution and Fund Allocation
The allocation of central funds to states follows the recommendations of the Finance Commission (FC), which determines the distribution of taxes collected by the central government.
The 15th Finance Commission recommended that 41% of the Centre’s divisible tax pool be allocated to states from 2021 to 2026, under what is known as vertical devolution.
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In addition, the Finance Commission uses several factors to distribute funds among states, a process called horizontal devolution. These factors include:
- Income Distance: The gap between a state’s per capita income and that of the highest-earning state.
- Population Size: Based on the 2011 Census.
- Forest Cover: The share of dense forests in each state.
Recent Fund Disbursements to States
The Union Government recently released ₹1,73,030 crore in tax devolution to state governments on January 10, 2025, significantly higher than the ₹89,086 crore allocated in December 2024. The increased funds aim to accelerate capital spending and enable states to finance their development and welfare initiatives.
Breakdown of Major Fund Allocations:
- Uttar Pradesh: ₹31,039.84 crore
- West Bengal: ₹13,017.06 crore
- Madhya Pradesh: ₹13,582.86 crore
- Himachal Pradesh: ₹14,317 crore
- Maharashtra: ₹10,930.31 crore
- Tamil Nadu: ₹7,057.89 crore
- Andhra Pradesh: ₹7,002.5 crore
- Karnataka: ₹6,310 crore
- Gujarat: ₹6,017 crore
- Chhattisgarh: ₹5,895 crore
- Assam: ₹5,412 crore
- Punjab: ₹3,126.65 crore
- Kerala: ₹3,330.83 crore
- Manipur: ₹1,238.9 crore
- Meghalaya: ₹1,327.13 crore
Political and Economic Implications
Goyal’s remarks highlight the ongoing debate over federal fiscal policies and revenue-sharing mechanisms. States that contribute significantly to the national GDP often argue that they deserve a larger share of central funds. However, the Centre maintains that national development requires a more equitable approach to fund distribution.
This controversy also has political ramifications, especially with Lok Sabha elections approaching in 2025. The BJP is positioning itself as the party advocating inclusive national development, whereas opposition-ruled states continue to push for greater fiscal autonomy.
