People watch as Union Finance Minister Nirmala Sitharaman presents the Union Budget 2026-27 on February 1, 2026. Experienced public finance experts say that Tamil Nadu has virtually nothing to spare. | Photo credit: The Hindu
Despite the five southern states being collectively allotted a higher share under the 16th Finance Commission’s (FC) vertical distribution scheme than in the past, Tamil Nadu’s share saw only a marginal increase.
Tamil Nadu’s share, which was 4.079% in the 15th FC, has now increased to 4.097%, a growth rate of 0.44%. It was followed by Telangana with an increase of 3.43% and Andhra Pradesh with 4.2%. Only Karnataka and Kerala witnessed double-digit growth rates — 13.27% and 23.74% respectively. At the all-India level, Kerala’s growth rate is only next to Haryana’s 24.52%, while the third slot belongs to Karnataka.
‘Practically Nothing’
Experienced public finance experts say that Tamil Nadu has virtually nothing to spare. “Again, unfair treatment” is the refrain of analysts. One expert claims that the 16th FC included contribution to gross domestic product (GDP) as one of the criteria for horizontal devolution. But in this category Tamil Nadu’s share may have gone down. The criterion of tax and fiscal effort was removed, while weights were assigned to the criteria of area, demographic performance and per capita gross domestic product (GDP). Only the population criterion saw an increase in weight from 15% to 17.5%, but this does not favor the southern states including Tamil Nadu and Kerala.
KR Shanmugam, former director of the Madras School of Economics, says the increase in vertical devolution for the south appears to have been achieved by reducing the share of six northern states like Uttar Pradesh, Madhya Pradesh and Bihar, apart from West Bengal. The combined share of the seven states, which was 51.20%, was reduced to 49.93%.
Pointing out that only relief and temporary restoration works are covered under the disaster response fund schemes, the veteran policymaker suggests that the Union government should follow the example of the Tamil Nadu government, which created a ₹100 crore project preparation fund after the December 2015 floods in Chennai and surrounding areas to formulate projects to be submitted to funding agencies. Such a fund would be useful for states that frequently experience natural disasters.
The 16th FC dealt in detail with the subject of subsidies, an area where the South set the trends. “At ₹78,453 crore, Tamil Nadu had the highest absolute level of subsidy in 2023-24, followed by Karnataka, Andhra Pradesh and Telangana at ₹70,149, ₹63,951 and ₹62,847,” the panel records. Noting that absolute subsidy levels are “somewhat misleading” given the state’s size, the Commission names Telangana as one of the states where subsidy levels, as a share of respective GSDP, exceeded 5% in 2024–26, and Andhra Pradesh with subsidy levels between 3% and 5%.
In terms of channeling subsidies to eligible beneficiaries, the FC report refers to measures taken by the governments of Andhra Pradesh, Telangana and Tamil Nadu. It recognizes that by using data analysis in integrated information technology (IT) enabled databases, these states have been able to deduplicate and streamline the beneficiary list, resulting in substantial savings.
Although the southern states took a similar position on many issues, they differed on the issue of revenue deficit grants to bridge the revenue gap. While Karnataka expressed skepticism, Andhra Pradesh, Kerala and Tamil Nadu wanted the continuation of these grants. However, the 16th FC recommendation was against the grants.
The 16th report of the finance commission was submitted, the share of states in the tax remained at 41%
The Centre’s decision to maintain states’ share of common tax pool at 41% for 2026-31 has drawn criticism from opposition leaders. Finance Minister Nirmala Sitharaman tabled the Sixteenth Finance Commission Report in the Lok Sabha on 1 February 2026, which laid down the framework for devolution of taxes between the Center and the states. Several states, including Karnataka and Kerala, sought a higher 50% share, citing growing fiscal responsibility. | Video Credit: The Hindu
Published – 03 Feb 2026 0:24 IST
