Global Trends and Opportunities
Trends like “friendshoring” and “reshoring” are reshaping global trade, presenting an opportunity for India to attract investment and boost growth.
The Commission’s decisions will shape India’s economic trajectory, aligning it with global trends while addressing fiscal challenges.
India and Tamil Nadu must capitalize on these shifts, ensuring that resource distribution incentivizes growth in high-performing states.
Fiscal Challenges and Resource Distribution
Vertical Devolution: The Fifteenth Commission allocated only 33.16% of Union tax revenue to states, below the expected 41%, due to Union cess and surcharges.
States that are less-developed have been favored through horizontal devolution, but the approach hasn’t significantly driven growth in these states.
A fairer system of distribution is needed to correct disparities and ensure that resource allocation supports growth across all states.
Incentivizing Growth in High-Performing States
States should receive 50% of central tax revenue to support local developmental needs and enhance fiscal autonomy.
The focus should be on expanding the national economic pie, so that all states, including high-performing ones like Tamil Nadu, can continue growing while less-developed states receive adequate support.
A progressive resource allocation methodology is essential for high-performing states to remain engines of India's economic growth.
Unique Challenges for Progressive States like Tamil Nadu
Tamil Nadu faces demographic challenges with a median age higher than the national average, impacting consumption-based tax revenue.
Tamil Nadu will have 57.3% urban population by 2031, requiring substantial investments in urban infrastructure.
Avoiding the Middle-Income Trap: Tamil Nadu must avoid stagnation and continue its growth path, requiring fiscal policies that address both aging demographics and rapid urbanization.
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