New Delhi: Southern states should get a “slightly larger portion” of funds from the Union government through a “recorrection” in the fiscal range to avoid “disaffection” from growing, especially if the political representation of these states change post the delimitation exercise in 2026, former Chief Economic Advisor (CEA) Arvind Subramanian said on Sunday (January 7).

Deccan Herald quoted him as saying that the wedge between fiscal power and contribution and political power is going to rise. However, he expressed hope that the 16th Finance Commission will address these critical issues.

“If, for example, the political representation is changed, which gives more relative power to the Hindi Heartland relative to the Southern states that have slower population growth, the disaffection will grow because the Southern states will say we contribute much more fiscally (but) we are losing political power,” Subramanian said.

“Southern states, including Tamil Nadu, should retain a slightly larger portion of resources that are coming from the Centre. I think that has to be part of the new social contract going forward,” he added.

The former CEA made these comments at an interactive session, in which another former CEA and former Reserve Bank of India governor Raghuram Rajan were also present.

Rajan, who is also advising the Tamil Nadu government like Subramanian, said India is too big to be run only from New Delhi. He called for more finances to the states which are investing in huge infrastructure and social projects. He said that the issue between the Union government and states was that the former is raising a lot through cess which is not being shared with the latter.

“That is the problem. I think the 14th Finance commission tried to devolve more to the states, but we have got more towards the Centre slightly in the 15th Finance commission…States are extremely important and we need to devolve more finances to the states and (ensure) a steady devolution of funds,” Rajan added.

Subramanian and Rajan's remarks come amid concerns among southern states that their allocation from the Centre has diminished over the years. They perceive a potential consequence for managing population growth, expressing concerns about a potential decrease in the number of parliamentary seats following the 2026 delimitation.

Separately, speaking on the China 1 strategy, Rajan said that India was attracting much less investments than it was thought to be as a lot of investments are going to countries like Vietnam and Mexico, which according to him, were scoring because of more regional trade agreements.

“India, as a country, needs to focus more on this. How do we get more of that kind of flow which would mean negotiating more of these regional trade agreements from which of course states like Tamil Nadu will benefit,” he said, adding that India was losing out despite its advantages like huge manpower and domestic market.

Subramanian and Rajan further said that the state government should pay attention to the debt, especially in the power sector, which is one-third of the total debt of Tamil Nadu. They also lauded the state government for initiating reforms in several sectors like increasing the property taxes and indexing them with inflation.

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