The population-based delimitation of Lok Sabha constituencies, slated for 2026, is hanging like a Damocles Sword over the heads of the southern states as they face the prospect of losing their strength in the Parliament.
The key question that is being asked is why the South should be penalised for controlling population growth and concentrating on development. The Centre must come up with a suitable mechanism to address their concerns and ensure regional balance in representation in the Parliament. It is also time for all political parties in the South, cutting across party affiliations, to raise their voice against the injustice being done through the present method of delimitation which takes population into account while redrawing the borders of the constituencies.
The irony is that the progressive policies of the southern states are harming them while those states that have been unable to control their population over decades stand to gain from the delimitation. Post-delimitation, the total seats in the South are projected to come down to 103 from the existing 129, a prospect that could trigger mass protests and severe public resentment. In contrast, Bihar and Uttar Pradesh together will have a total of 222 MPs. Another study had projected that four northern states–Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh—would collectively gain 22 seats while four southern states of Telangana, Andhra Pradesh, Kerala, and Tamil Nadu would lose 17 seats.
Punishing performing states
It must be pointed out that southern states account for just 18% of the country’s population but contribute 35% of the Gross Domestic Product (GDP). It would be a travesty of justice if such progressive states are put at a disadvantage in the delimitation exercise. The North Indian states have consistently ignored the Central Government’s population control measures but now stand to benefit in terms of representation in the Parliament.
In the present circumstances, the delimitation, along with a smaller share of central funds to states on the basis of the population, can be unfair to southern states where the economic situation has improved dramatically since the turn of the 21st century. It will also affect the division of seats reserved for SCs and STs in each state. With the total number of Lok Sabha seats frozen for almost 50 years, there are now wide discrepancies between states on the average number of electors represented by each MP.
The delimitation exercise in 2026 would presumably seek to redraw the boundaries so that each parliamentary constituency has roughly the same population. This would mean an increase in seats in states with high populations. Given the political motives of the current dispensation at the Centre, there are genuine apprehensions that the delimitation could lead to unequal representation in the Parliament.
Increase states’ share in central taxes
At a conclave of finance ministers of non-BJP states held in Thiruvananthapuram recently, a unanimous demand was made to increase the states’ share in the central pool of taxes from 41% to 50%.
The meeting was held as a prelude to preparing a case for fair devolution of taxes to the states and presenting it before the 16th Finance Commission.
The declining share of states in real terms in the divisible pool of taxes, faulty implementation of the Goods and Services Tax (GST) regime and restrictions on borrowings by the states are some of the issues that have created tensions in the Centre-State relations.
Though the 15th Finance Commission recommended that 41% of central taxes be devolved to states, the actual amount the states are receiving is only about 30% since the Centre has been relying more on cesses and surcharges, which do not need to be shared with states. Though the successive Finance Commissions have been recommending cutting down the share of cesses and surcharges, the Centre has been simply side-stepping this recommendation.
At the time of framing the Constitution, non-tax revenues were insignificant and therefore not included in the divisible pool. But over the years, non-tax revenues of the Centre have become more buoyant. Non-tax revenues, which are not shared with States, have increased from a mere Rs. 175 crore in 1960-61 to Rs. 2.85 lakh crore in 2022-23. An amount of Rs. 5.46 lakh crore is budgeted in 2024-25. Therefore, there is a strong case for the inclusion of non-tax revenues in the divisible pool.
Horizontal Devolution
Over the years, the states with lower per capita incomes have been getting higher tax devolution. While there is a need to address both equity and efficiency, excessive focus on equity parameters has not served the purpose of reducing income inequalities across states. On the contrary, income inequalities have been widening. The problems of backward States can be better addressed by increasing the absorptive capacity and providing funds for infrastructure development. For this, a separate non-lapsable Infrastructure Fund for Backward States outside the dispensation of the Finance Commission is a better option.
At present, the Centre is collecting Rs.1.40 lakh crore from surcharges on income and corporation taxes, which are not purpose-specific and form part of the Consolidated Fund of India. This amount can fund the proposed Infrastructure Fund. This will facilitate the growth of backward States without disincentivising performing States.
There is a need to incentivise States that have improved their tax collections and their base and to encourage other States to follow suit. Tax revenues are the most important source of revenues of States and constitute over 80% of a State's revenue receipts. There is a need to increase the weightage assigned to tax effort in the devolution formula to 10% from the present 2.5%.
Inherent imbalances
In the present system, there are several inherent imbalances in the revenue resources and responsibilities assigned to the Centre and the States. While the Centre is assigned with more sources of revenue with a nationwide base, the States are assigned with more responsibilities touching the lives of the people.
Over decades, the Centre has failed to uphold the principles of equity, autonomy and efficiency in the financial relations with states. This has adversely affected the development of states. The framers of our Constitution never intended centralised financial control.
If the Centre is serious about preserving and strengthening fiscal federalism, it needs to rebuild the trust of the states. The 16th Finance Commission must objectively determine the tax devolution criteria to reduce inter-state disparities.
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