Ensure developed states like TN don't get stuck in 'middle-income trap': CM Stalin tells 16th Finance Commission

CHENNAI: Tamil Nadu Chief Minister MK Stalin on Friday emphasised the need to prevent states from getting stuck in the ‘middle-income trap' of stagnating growth, and also urged the 16th Finance Commission to seize the opportunities opened by global changes to promote equitable redistribution of funds.

The emerging new patterns, including the shifting of business activities to friendly countries and the re-localisation of production and investment, were reshaping international trade and investment practices, he said.

The CM pointed out that the 16th Finance Commission has undertaken its work at a time when many important changes were taking place at the global level.

"These changes also present unique opportunities for India and Tamil Nadu. To seize these opportunities, the Finance Commission faces challenges including equitable redistribution to the states and promoting growth in better-performing states like Tamil Nadu," Stalin said in a statement here.

Highlighting the challenges before the Commission and suggesting the approach to be adopted, Stalin said developed states like Tamil Nadu faced unique challenges like population and urbanisation. With the ageing population growing faster than the national average and the expenditure on support schemes for the elderly increasing, consumption-based tax revenue was continuously declining.

"It is necessary to ensure that such states do not get stuck in the ‘middle-income trap' of stagnating growth," Stalin said.

The "middle-income trap" refers to a state of stagnation of per capita income growth when the country's economic growth slows down as its income increases, thus making it difficult to transition to a higher income status.

Similarly, urbanisation was one of the immediate challenges that needed to be addressed in rapidly growing states, he said.

States like Tamil Nadu were facing the challenge of increasing urbanisation at the fastest rate in the country. Due to this, its urban population is projected to be 57.30 per cent by 2031, which is higher than the national average of 37.90 per cent at that time. Therefore, the infrastructure required for future urbanisation to ensure sustainable development is needed, Stalin argued.

It must be remembered that the recommendations of the Finance Commission were not only about economic accounts but it is also about determining a future in which all states contributed equally to the economic growth of the country and benefit from it, he said.

"Whether it is promoting manufacturing, addressing the challenges of urbanisation or dealing with climate change, the recommendations of the Finance Commission have an impact on the lives of crores of people and determine the path required to establish India among the leading economies of the world," he said.

The Chief Minister called for an increase in the state's share of central taxes to 50 per cent.

The decisions to be taken by this Finance Commission would not only shape the country's fiscal activities for the next five years but also have an impact on the economic path that India will choose in the coming years, Stalin stressed.