Hyderabad: Telangana has emerged as one of the key gainers in the fiscal and tax devolution framework proposed under the 16th Finance Commission, according to a working paper published by the National Institute of Public Finance and Policy (NIPFP). The paper highlights Telangana among the “high-growth, high-efficiency” states expected to benefit from the revised devolution formula that gives greater weightage to states’ contribution to national GDP.Under the revised horizontal devolution formula, Telangana is expected to record a meaningful increase in its inter-se share of central taxes. The Commission has introduced a new 10% weight for contribution to national GDP while reducing the weight for income distance and area. The report says this shift favours economically dynamic states such as Telangana, Karnataka, Gujarat, Maharashtra and Tamil Nadu.The paper argues that the revised formula marks a transition from a predominantly “need-based” transfer system towards a more “performance-oriented” federal framework. While this could improve incentives for revenue mobilisation and fiscal discipline, it may also widen regional disparities in the short term.The paper contrasts Telangana’s fiscal position with states such as Punjab, Andhra Pradesh, Kerala and Bihar, which continue to face high deficits due to large committed expenditures, subsidies and debt burdens. Telangana was cited as an example of adherence to the “golden rule” of fiscal consolidation, where revenue receipts adequately cover recurring expenditure, thereby avoiding debt-financed consumption.The study notes that Telangana has maintained relatively prudent fiscal management compared to several other large states. Along with Odisha, Maharashtra and some northeastern states, Telangana has either maintained revenue surpluses or near-zero revenue deficits through stronger resource mobilisation and disciplined expenditure management.The report also points out that Telangana stands to benefit from broader Union Budget initiatives linked to manufacturing, semiconductors, AI and infrastructure investments, particularly as the Centre focuses on growth-oriented capital expenditure and state-level reforms.
