Southern states should get 'slightly larger portion' of funds from Centre: Arvind Subramanian

Chennai: Southern states should get a “slightly larger portion” of funds from the Union Government through a “recorrection” in the fiscal range to avoid “disaffection” from growing especially if the political representation of these states change post the delimitation exercise in 2026, former Chief Economic Advisor Arvind Subramanian said on Sunday.

Subramanian, while attending an interactive session along with another former CEA and RBI Governor Raghuram Rajan, said the wedge between fiscal power and contribution and political power is going to rise, but expressed hope that the 16^th Finance Commission will address these critical issues.

Southern states say why should they contribute to redistribution of funds (from them to northern states) consistently over time and the “big moment” will be when the delimitation exercise takes place in 2026, Subramanian, who was the CEA to the BJP government from 2014-2018, said even as he asserted that he was painting a “dire picture."

“If, for example, the political representation is changed which gives more relative power to the Hindi Heartland relative to the Southern states that have slower population growth, the disaffection will grow because the Southern states will say we contribute much more fiscally (but) we are losing political power,” Subramanian said.

The wedge between fiscal power and physical contribution and political power is going to rise over time which needs a re- correction in the fiscal range.

“Southern states including Tamil Nadu should retain a slightly larger portion of resources that are coming from the Centre. I think that has to be part of the new social contract going forward,” Subramanian added.

Rajan, who is also advising the Tamil Nadu government like Subramanian, said India is too big to be run only from New Delhi and batted for more finances to the states which are investing in huge infrastructure and social projects. He said the issue at the centre of the issues between the Union Government and states was that the former is raising a lot through cess which is not being shared with the latter.

“That is the problem. I think the 14th Finance commission tried to devolve more to the states, but we have got more towards the Centre slightly in the 15th Finance commission…States are extremely important and we need to devolve more finances to the states and (ensure) a steady devolution of funds,” Rajan added.

The comments by Subramanian and Rajan come amid concerns among southern states that their share from the Centre has dwindled over the years and feel that they are being “punished” for controlling population as they fear a possible reduction in the number of parliament seats post 2026 delimitation.

Touching upon the China+1 one strategy, Rajan said India was attracting much less investments than it was thought to be as a lot of investments are going to countries like Vietnam and Mexico, which according to him, were scoring because of more regional trade agreements.

“India, as a country, needs to focus more on this. How do we get more of that kind of flow which would mean negotiating more of these regional trade agreements from which of course states like Tamil Nadu will benefit,” Rajan added and suggested India was losing out despite its advantages like huge manpower and domestic market.

On Tamil Nadu, Rajan and Subramanian said the state which is doing well in the manufacturing sector should concentrate on attracting more investments in the service sector in which it is currently “punching below its weight.”

They also said the state government should pay attention to the debt especially in the power sector which is one-third of the total debt of Tamil Nadu, while lauding the state government for initiating reforms in several sectors like increasing the property taxes and indexing them with inflation.