Unequal Bargain

Union Commerce Minister Piyush Goyal’s recent remarks dismissing the demand for proportional tax devolution reflects a deep misunderstanding of India’s federal structure. His argument, that it is ‘unfortunate’ for states like Maharashtra, Karnataka, Tamil Nadu, and Telangana to expect a fair return on the taxes they contribute, betrays a centralist mindset that contradicts both economic logic and political prudence.

Goyal is right to highlight the Modi government’s focus on the Northeast and eastern states. Infrastructure investment in these regions is long overdue. But this does not justify an opaque and inequitable distribution of central funds. The argument that wealthier states must fund poorer ones is valid in principle, but it cannot be an excuse for fiscal discrimination. India’s taxation system is already heavily skewed against high-income states. The share of central taxes that a state receives is not based on its contribution but on parameters such as income distance, demographic weight and forest cover - criteria that disproportionately benefit less developed states. Maharashtra, which contributes roughly 15 percent of India’s GDP, received just Rs. 10,930 crores in tax devolution this January, whereas Uttar Pradesh, which contributes far less, received three times that amount.

A fairer tax arrangement does not mean abandoning the idea of national solidarity. Developed states acknowledge their responsibility in nation-building, but they also require adequate reinvestment to sustain their growth trajectories. Their economies are the engines of India’s broader prosperity. Mumbai, Bengaluru, Chennai and Hyderabad are not just regional hubs; they are financial and technological nerve centers whose competitiveness is crucial to India’s global standing. Underfunding these states in the name of ‘Act East’ policies risks hampering national economic momentum.

The minister’s argument is also politically dangerous. The principle of fiscal federalism is at the heart of India’s unity. When a state’s electorate perceives itself as being consistently shortchanged, it fuels resentment and strengthens regionalist movements. Southern states, in particular, have been vocal about what they see as an unfair distribution of resources. Governments in Telangana and Tamil Nadu have frequently questioned why their tax contributions do not translate into better fiscal support. The BJP’s reliance on Hindi heartland votes may make it indifferent to these grievances for now, but alienating southern and western India is a risky long-term strategy.

Moreover, the Finance Commission’s recommendations, which guide tax devolution, are not immutable laws of nature. They are political decisions, shaped by economic theories and policy priorities. If wealthier states demand a reassessment, they are not indulging in petty thinking but are questioning an outdated framework that does not reflect their aspirations or contributions.

Instead of dismissing their concerns, Goyal would do well to acknowledge that economic fairness is integral to national unity. India’s economic rise has been powered by its most productive states. If these states begin to feel that their growth is penalized rather than rewarded, the very foundation of cooperative federalism will be at risk.