UP's Per Capita Income 2nd Lowest, But State Finances Good: Finance Commission Chief

Notwithstanding the fact that Uttar Pradesh is the second lowest per capita income in the country, the state has emerged as one of India's best-managed states in terms of finances, Chairman of the 16th Finance Commission Arvind Panagariya said here on Wednesday.

Speaking at a press conference at the Lok Bhawan in Lucknow, Panagariya said the Commission was apprised of the state's economic reforms, demographic trends, fiscal performance and achievements during its visit.

He said the panel had an interaction with UP Chief Minister Yogi Adityanath, Chief Secretary Manoj Kumar Singh and other senior officials.

"All in all, Uttar Pradesh is a well-run state. Its tax collection as a proportion of GSDP is among the highest in the country.

"Indeed, one would like to see other states be able to do the tax collection as the proportional GSDP to the tune of what UP can do, which will go a long way towards solving the revenue problems of the other states as well," he said.

Panagariya also praised the state for keeping its expenditures well within budget and maintaining a healthy debt profile.

"Its expenditures are also well designed and well within its budgets," he noted, adding, "Its fiscal deficits are well within the usual limits." Commenting on Uttar Pradesh's favourable fiscal position, the Commission chairman pointed to two key advantages - the state's robust own tax collections and the support it receives in horizontal devolution due to its economic standing.

"On finances, UP has a double advantage. One, its own tax collections (SGST, excise, etc) are good. The second is, finance commissions are traditionally also, in horizontal devolution, give more weight to poorer states which have lower per capita income. UP has the second-lowest per capita income after Bihar, which has the lowest. That also works to UP's advantage," he explained.

Highlighting the responsible fiscal management of the state, he said, "Good finances can also be squandered, but that's not the case with UP. It has prudently managed its finances." He also noted that Uttar Pradesh's debt-to-GDP ratio remains at manageable levels, ensuring that interest payments do not eat into the state's developmental expenditure.

"Its debt-to-GDP ratio is also very much within manageable levels. That, of course, makes its finances a little more comfortable because if you have very large debt, then a substantial part of your expenditures ends up being devoted to the interest payment of that debt," he said.

Panagariya cautioned that states with high debt levels risk burdening future administrations.

"If you have very high debt, then the government which runs that high debt may not suffer, but future governments end up suffering when you end up creating liabilities for the future," he said.

Panagariya, during the press conference, also highlighted that Uttar Pradesh, like the majority of 28 states, has demanded a 50 per cent share in tax revenue, which is shared between the Centre and states, up from 41 per cent at present.

The state has also sought special funds for targeted development schemes.The state has also sought special funds for targeted development schemes.

The 16th Finance Commission of India was constituted on December 31, 2023, under Article 280 of the Constitution. Its primary mandate is to recommend the distribution of tax revenues between the Centre and states, for a five-year period commencing April 1, 2026.

The Commission is expected to submit its report by October 31, 2025. Its recommendations would be for 2026-27 to 2030-31.