'South Tax Movement': Why Southern States Are Protesting Against The Union Government – Explained

Political leaders from Karnataka, Kerala and Tamil Nadu have been protesting in Delhi against the Centre over alleged injustice meted out to the southern states in devolution of taxes – in what comes as a fresh rift between the northern and the southern states of the country. While Karnataka Chief Minister Siddaramaiah and Deputy Chief Minister DK Shivakumar were the first to come knocking at the doors of Delhi ministers, ruling political party leaders of Kerala and Tamil Nadu have joined the protest as well.

Karnataka Congress leaders alleged that the formula used to devolve taxes to the states, especially Karnataka, under the 14th Finance Commission was changed by the 15th Finance Commission and called for reverting to the old formula to stop the loss of revenue for his state. 

Kerala Chief Minister Pinarayi Vijayan and his Left government has also blamed the centre for the state’s financial woes and alleged that the centre was restricting the states' borrowing space by misusing its powers under Article 293 of the Constitution. Tamil Nadu CM MK Stalin extended full support to Vijayan on this issue of preserving fiscal federalism.

How did the ‘South Tax Movement’ begin?

The row erupted when the Union Finance Minister Nirmala Sitharaman presented the Interim Budget 2024-25 on February 1. The Congress-led state government in Karnataka alleged that "injustice" has been meted out to Karnataka in tax devolution and grants-in-aid over the past few years.

Listing some instances of ‘injustice’, CM Siddaramaiah stated that drought relief funds have been denied to Karnataka, even as 223 out of 236 talukas of the state are grappling with the effects of drought, with 123 experiencing severe drought conditions. 

Congress general secretary Jairam Ramesh alleged that rice for the "Anna Bhagya" scheme was denied, after the Modi government on June 13, 2023 discontinued the direct sale of rice and wheat from the central pool to State governments. “Denying Kannadigas the right to free grains just because they voted for the Congress party is the height of anti-national behaviour, especially by the Prime Minister," he said.

Apart from the scheme-related allegations, the crux of Karnataka Congress leadership’s allegations lie in the recommendations of the 15th Finance Commission that allocates funds to states on the basis of several criteria, which include population and difference in per capita income.

What is the issue with the 15th Finance Commission’s recommendations?

The 15th Finance Commission, which was set up in 2017 and tabled its report in 2021, used the 2011 Census data for allocating funds to different states. This was the first time that the FC used the 2011 Census as opposed to the 1971 Census that had been used by the previous nine Commissions for their calculations. 

However, this came as a setback to southern states as they would get a smaller share of tax revenue only because their population had decreased by 2011, due to effective population control measures, which, these states argued, is an accomplishment for which they should be rewarded, not penalised. 

As reported by Outlook, Karnataka's share in India's population has gone down from 5.34 per cent to 5.05 per cent while Tamil Nadu's share has declined from 7.52 per cent to 5.96 per cent. Hence, these states have also seen their share decline in the funds allocation by finance commissions. 

“North Indian states did not tackle population growth…So population control has become a curse for us. Is this not injustice?,” Karnataka CM Siddaramaiah asked a gathering of lawmakers who were staging a sit-in protest at Jantar Mantar.  

Apart from Karnataka, why are other southern states protesting?

Kerala: Apart from financial matters, the Left government in Kerala is also protesting against "how the Centre is making laws that encroach upon the states' powers and duties in several sectors, even on law and order, which is absolutely in the States List in the Constitution," CM Pinarayi Vijayan said. He also brought up the conflict between governors in opposition-ruled states and their respective state governments: "Interests and statutes of the states are being sidelined in this regard. Rather than consulting the state governments, even on matters related to state-funded universities, governors have made political interferences as Chancellors (of universities). In Kerala too, the same is happening." he alleged.

Tamil Nadu: The state's ruling DMK members are also protesting against the union government for not allocating the requisite funds to the state and for "ignoring" it in the union interim budget. DMK MPs also raised slogans demanding the Central government to abolish National Eligibility-cum-Entrance Test (NEET) and GST.

What is the Centre’s position?

Amid debates over funds allocated by the Centre to southern states, Finance Minister Nirmala Sitharaman said that she lacked discretion to alter Finance Commission's recommendations as per the current nature of the tax devolution process. She also accused the state government of harbouring a "separatist" mindset and spreading a "false narrative".

She reiterated that the Centre has released all funds due to the Karnataka government as has been recommended by the Finance Commission from time to time. Meanwhile, Prime Minister Narendra Modi too accused the opposition party of creating a North-South narrative to divide the country.

Not the first time

This is not the first time that southern states have expressed fears over being treated unequally due to their population control measures. These fears are mainly over the delimitation exercise, which is the process of fixing the number of seats and boundaries of territorial constituencies in each State for the Lok Sabha and Legislative assemblies. 

However, this exercise has been frozen as per the 1971 Census in order to encourage population control measures so that states with higher population growth do not end up having higher number of seats. When the women’s reservation bill was passed in the Parliament last year, political leaders in the south expressed concerns over the condition that bill would only be implemented only once the delimitation exercise is carried out: however, if a fresh census is to be carried out and delimitation exercise is conducted on the basis of its figures, the rise in population of northern states like Uttar Pradesh is highly uneven in comparison to the southern states; this would mean that states will lesser population (southern states) might end up having lesser political significance.