A five-judge Supreme Court bench reserved its verdict Thursday on a petition filed by several southern states challenging the central grants devolution formula, after three days of arguments.
Petitioner states argued the current formula, weighted heavily toward population, disproportionately reduces their share of central transfers despite stronger fiscal performance.
The central government defended the formula as constitutionally sound, arguing that population weighting reflects genuine need. A verdict is expected within the next quarter.
Senior counsel for the petitioner states argued that the current weighting, largely unchanged since the last Finance Commission cycle, fails to account for the fiscal cost of managing denser urban populations and higher per-capita service delivery in states that have slowed population growth through sustained investment in health and education.
The solicitor general countered that any shift toward a purely need-based formula would have to be recommended by a future Finance Commission through its ordinary process, not imposed by judicial order, and warned that a ruling in the petitioners' favour could invite similar challenges to other centre-state fiscal arrangements.
Several state finance ministers not party to the case have filed intervention applications, split roughly along the same population-growth lines as the original petitioners, underscoring how closely the outcome is being watched ahead of the next Finance Commission's constitution.
Legal analysts said the bench's questions during arguments suggested reluctance to prescribe a specific formula, with several judges instead probing whether the Commission's own consultative process already provides adequate recourse for the petitioner states' grievances.
Whatever the outcome, constitutional scholars note the ruling will not itself alter the devolution formula — that remains the Finance Commission's prerogative — but a finding that the current approach raises equity concerns would substantially strengthen the petitioner states' hand heading into the next Commission's deliberations.
