States can tax high-income diversified agriculture: Montek Singh Ahluwalia

Economist Montek Singh Ahluwalia has opined that state governments can tax large agriculture farms that are diversifying and getting high income levels, to strengthen finances.

Speaking at a conference on the 16th Finance Commission report on Wednesday, the former Deputy Chairman of the Planning Commission said the revenue generated from taxing diversified agriculture can be retained entirely by the states and need not be shared with the Centre.

"Now, the fact of the matter is that all of agriculture cannot be taxed by the Centre and can only be taxed by the states. Is it the assumption that agriculture must forever remain exempt from income tax, irrespective of the size of the holding? It's very difficult to defend that," he said.

 

He added, "If you have holdings of modest size that are diversifying, they can certainly be generating reasonably high income levels and come under the income tax category. That tax would go 100 per cent to the states. It wouldn't be taken away by the Centre."  Ahluwalia further said that nothing in the Constitution prevents a state government from devolving resources downward if it chooses, though pressure is often directed at the central government.

He added that if a state chief minister decides, as a political decision, to devolve and decentralise funds to the third tier of government to achieve global standards, they do not need the Centre's permission.

The economist also noted that human capital-covering child health, maternal health, education, and related areas-is linked more to lower levels of government rather than national-level direction in most countries.

He highlighted asymmetries across Indian states, pointing out that southern states have achieved substantial reductions in population growth due to markedly lower fertility rates.