‘Delimitation cannot be done abruptly’: Ex-RBI Governor D Subbarao’s two-point solution to North-South divide

The Centre needs to put an end-date for the cross-subsidisation from rich to poor states to deal with the North-South divide, former RBI Governor D Subbarao said on Thursday. He said this ‘North-South divide’ has two dimensions – fiscal and political. For the political dimension, he said, the government should carry out phase-wise delimitation, which is due in 2026. 
   
For the last few years, some southern states have raised concerns that delimitation based on population growth may bring down the number of Lok Sabha seats in the South relative to the North. They have also complained about the “unfair tax money devolution” to southern states. Karnataka and Tamil Nadu have said they get just 15 paise for every rupee tax contributed to the central tax pool.   

Subbarao said there has been a practice of distributing part of the central pool of taxes across states. “If you take rich states like Maharashtra and Tamil Nadu, every rupee they contribute to the central tax pool, they get back less than a rupee. On the other hand, poor states like Bihar and Jharkhand get more than a rupee for every rupee they contribute to the central tax pool,” he said in an exclusive conversation with Business Today TV’s Managing Editor Siddharth Zarabi.   

The former RBI governor said that such cross-subsidisation is inevitable and necessary in a large and diverse country like India. “It happens in most federations. It happens perhaps more markedly in our country, and it’s been an acceptance that cross-subsidisation from richer states to poor states. But the question today is – are we hitting the limits of the cross-subsidisation?” he said. 

Subbarao then turned to the political dimension. He said in two years from now in 2026, the country will be up for the limitation of parliament seats. “Today, South India has a bigger representation in the Parliament than North India on a ballpark estimate. And if the limitation is done, that will be equalised – that means that South Indian states will lose parliament seats relative to north Indian states.”

“So what will happen then is a double whammy for the South that even as they lose political clout, they have to continue to subsidise the rest of the country,” he said, adding that he hopes that the governments can resolve this amicably because “we need to be a strong country”. 

“We need south to grow stronger. We need the North to catch up and in fact, be equal to the South. So some enlightened political leadership is necessary – both at the central and state level to resolve this issue.”

When asked what would be his solution to the North-South divide, Subbarao said he would suggest delimitation should not be done abruptly. “It’s got to be phase-wise. And, there have to be some end dates put forth for cross-subsidisation…how much cross cross-subsidisation will happen. India is one country, and we want prosperity to be evenly distributed. But I think this has to come about through some formula-based adjustments both on the fiscal and political dimensions.”

The Southern states — Tamil Nadu, Karnataka, Kerala, Andhra Pradesh and Telangana — have been able to check their population growth through various family planning measures. Several leaders from these states have expressed fears that due to the huge population of the Northern states, they will get more seats.

Prime Minister Narendra Modi recently hinted that he may look at the regional balance instead of going solely on the basis of population for delimitation. In October last year, during a rally in Telangana, he targeted Rahul Gandhi for promising “jitni aabadi, utna haq”. He said if the delimitation happens by Gandhi’s formula, the South will lose at least 100 seats in Parliament. 

“Will South India accept this? Will South India forgive the Congress? I want to tell Congress leaders not to fool the nation. Make it clear why they are playing this game,” he argued. “I want to specify that this new thought (Jitni aabadi, utna haq) is injustice to southern India.”