Discuss the factors responsible for the erosion of States' own-tax revenue capacity in India, using Tamil Nadu's experience as a case study.

Own-tax revenue — SGST, stamp duty, State excise and motor vehicle tax — is the truest measure of a State's fiscal self-reliance. Its stagnation relative to GSDP across Indian States, visible even in a high-income State like Tamil Nadu whose own-tax-to-GSDP ratio has hovered around 6.4% [1], points to structural rather than merely administrative erosion.

Shrinking autonomous tax handles after GST

• Subsuming most indirect taxes has left States with few rate-setting levers; revenue now depends on collective GST Council decisions.
• The 15th Finance Commission flagged the inverted duty structure and unrationalised slabs as drags on GST yield [3].
• Transition losses were real: Tamil Nadu budgeted ₹10,300 crore as GST compensation grants in 2020-21, a cushion that has since lapsed [1].

Narrow and under-exploited bases

• Stamp duty and registration fees have "large untapped potential" but suffer undervaluation of property [3] — barely ₹14,435 crore of Tamil Nadu's 2020-21 tax pool [1].
• Exemptions, evasion and low compliance keep tax buoyancy near or below one in many years, so collections lag income growth.

Weak non-tax revenue

• Under-priced user charges, low PSU dividends and poor asset monetisation keep non-tax receipts marginal — under 7% of Tamil Nadu's revenue receipts [1].

Transfer-dependence dulling revenue effort

• Assured 41% devolution and revenue-deficit grants of ₹2.94 lakh crore to 17 States [3] soften the incentive to tax; Tamil Nadu itself drew ₹4,025 crore as such a grant [1].
• Populist commitments expand spending faster than the 12% receipts growth budgeted for 2025-26 [2].

Erosion is thus a compound of constitutional redesign, narrow bases and weak effort. Tamil Nadu's response — a Revenue Augmentation Committee under Montek Singh Ahluwalia to plug leakages, rationalise exemptions and tap new sources — is a replicable model. With the 16th Finance Commission report for 2026-31 now submitted [4], States that rebuild own-revenue capacity will best realise the cooperative federalism envisaged in Article 280.