The BJP government in Haryana has made a pitch for a higher devolution of revenue from the Centre asking the 16th Finance Commission to consider rewarding high performing states in devolution formula.

The 16th Finance Commission headed by Arvind Panagariya held day long meetings with chief minister Nayab Singh Saini and officials in Chandigarh to discuss the devolution of tax revenue, both vertical as well horizontal, among the Centre and states and among different states, respectively. While Haryana’s per capita collection of goods and service tax (GST), as per an official document, came to ₹40,595 in 2023-24 fiscal, the per capita gross transfer of funds in 2023-24 was a mere of ₹8,581 only. As per the 15th Finance Commission, Haryana’s share in devolution of central taxes and duties was 1.09%. The state received the lowest share of central devolution at 17 % (as percentage of state’s revenue) amongst 20 major states in 2023-24.

Panagariya at a briefing said that Haryana has made a good case on enhancement of devolution. “On vertical devolution, Haryana’s recommendation was very similar to what most other states have said – that devolution to the states be increased from its current level of 41% of divisible pool to 50 %. It is a big ask to make such a big jump. It is very unusual though not unprecedented,’’ Panagariya said.

State recommends higher weightage for tax and fiscal effort criteria, reduction in weightage for population criteria.

The chairman of the 16th finance commission said that Haryana has a radically different set of suggestions on horizontal devolution as to how the share of the states ought to be divided among different states.

“Haryana has recommended that the weightage for horizontal devolution should be brought down from 15% recommended by the 15th finance commission to 7.50% for determining state’s share based on its population. The state has also proposed that weightage for determining state’s share based on its forest and ecology be reduced from 10 % to 5%,’’ Panagariya said.

Justifying the proposed reduction in weightage, state officials said the population criteria disregarded urbanisation and migration, ignored quality of public services and created regional imbalance over time. On forest and ecology criteria, state officials said that states which are urbanised in terms of percentage of total area have a lesser forest cover but higher development needs.

Panagariya said that Haryana has proposed that weightage given for income distance should also be reduced from 45% to 15%. Income distance means the gap in per capita income between a state and the one with the highest per capita income. State officials said that the income distance criteria ignored the regional inequalities and penalised economically performing states. The Finance Commission chairman said that Haryana has proposed an increase in the weightage given to tax and fiscal effort criteria from 2.50% to 35%. State officials said Haryana has a higher contribution towards central taxes hence there should be higher devolution. Also, state having an efficient tax administration and proactive fiscal management should benefit, officials said.

Panagariya said Haryana has proposed reduction in weightage for demographic performance criteria from 12.5% to 7.5%.

State officials said the demographic performance criteria uses the demography comparison of 1971 versus 2011, thus does not help much to less or below median populous states. Therefore, it should be lowered to address differential population across states, officials said.

Panagariya said that the state government has also proposed a new criteria – revenue loss due to introduction of GST- having a 15% weightage.

“However, this criteria for compensating the state for the loss of revenue due to introduction of GST is difficult to implement. We have sought more clarity from the state government on this,’’ Panagariya said.

Rationale behind Haryana’s pitch

Asking the Finance Commission to take a relook at the devolution criteria to ensure equitable fiscal federalism, the state government in its presentation said that a one-size-fits-all formula does not suit country’s diverse states with varied development needs. So, there was a need for customised devolution model based on socio-economic parameters and regional priorities for inclusive development, state officials said.

Regarding the vertical devolution, the state government said in its presentation that states share in central taxes should be increased to 50%, which will reflect cooperative federalism and increased fiscal responsibilities of states. An equal 50:50 sharing between the Centre and the states will help manage rising committed expenditures. The state government while making a pitch for higher devolution said that its contribution to country’s overall good and services tax (GST) collections has hovered around 6.2% – 7.1% over the last eight years despite its relatively smaller size and population. The state also ranked fifth in terms of share of contribution to India’s overall GST collections for 2024-25 and despite being landlocked, it is one of the top contributors in overall GST collections.

As per a document prepared by the Finance department, an analysis of NITI Aayog’s Fiscal Health Index Report 2025 showed that states with significant devolution of funds from Central government were being scored higher in the index.

“Though Haryana scores 47.8 points in revenue mobilisation, its overall rank is 14th out of 18 states on account of low score on debt sustainability, debt index, fiscal prudence and quality of expenditure. Bihar with score of 5.3 points in revenue mobilisation however ranked 13th primarily because of much higher support from the Centre,” the document said.

It further said that a lower devolution of funds from central government has adverse impact on the state’s finances in carrying out development works and welfare activities for overall economic growth as well as welfare of its people. The state government has to borrow, which resulted in repayment of interest and principal debt regularly, having negative effect on its fiscal position including quality of expenditure.