Hyderabad: Former Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday called upon states to widen their own revenue base instead of depending heavily on the Centre, suggesting that income from diversified medium-sized land holdings could be brought under taxation at modest rates.Such a move, he said, would allow states to retain the proceeds and strengthen their finances. Delivering a key address on the recommendations of the 16th Finance Commission at an event organised by the Centre for Economic and Social Studies (CESS), Ahluwalia urged state govts to explore underused taxing powers, particularly to enhance resources for local bodies rather than rely on central transfers. He pointed out that, by global standards, India allocates among the lowest levels of funding below the state tier. “In comparative terms globally, India provides the least amount of funds below the state level, which means to local bodies.” He emphasised that states face no constitutional bar to increasing allocations on their own, describing it as a political choice that could bring local body finances closer to international norms. “Why should it be assumed that agriculture should be exempt from taxation indefinitely?” he questioned.Untapped revenue sourceAhluwalia also highlighted property tax as a major untapped source of revenue, noting that chronic under-utilisation of such powers has weakened urban local bodies and constrained infrastructure investment. “The proportion of property tax relative to what we utilise is quite low compared to other countries,” he said. He further argued that the Finance Commission framework, conceived in a very different political and economic era, needs reassessment to remain relevant in a market-driven, globally integrated economy. Calling for broader fiscal reforms, he stressed the need to curb the proliferation of cesses, revisit the distribution of subjects across Union, State and Concurrent Lists, and take a bold approach to issues such as delimitation, state size and genuine devolution to local govts.
