When Success Feels Like Penalty: Why Southern States Are Upset With Budget 2026

Budget 2026 didn’t announce a shock cut. It didn’t redraw the map. And yet, it set off a familiar storm — especially in southern India. For Tamil Nadu, Kerala, Karnataka, and Telangana, this Budget, presented by Finance Minister Nirmala Sitharaman, felt less like a surprise and more like something they anticipated. “Failure is guaranteed anyway, the Union BJP government has once again snubbed Tamil Nadu!” posted Tamil Nadu Chief Minister MK Stalin on X (formerly Twitter) with the hashtag ‘NDABetraysTN’. The southern argument is blunt: we did what we were told. Invest in education. Fix healthcare. Control population growth. Build tax-paying economies. And now, decades later, those very achievements appear to work against them in the tax-sharing

math. Fewer people means less weight. Better finances earn polite applause — but not much money. Budget 2026 didn’t create that feeling; it simply reminded them of it.

Salem Dharanidharan, DMK’s National Spokesperson, calls this one “a zero budget.” Why? He explains, “We were expecting India’s research and development spending to increase. Our R&D spending is around 0.5 per cent. Countries like Israel spend about 5 per cent. R&D spending is very, very important to make India a superpower, a developed country. Only when you invest in research can a country become a superpower. Similarly, human capital is extremely important… Only when everyone gets equal access to quality education can a country truly prosper. Nothing on this front has been done.”The Skill India programme, he said, was launched with great fanfare, has failed, and no money has been allocated for it. “In the last budget, the government had allocated a source of funds for the internship scheme. But this year, there is a nearly negligible allocation for the internship scheme, which is very important to address unemployment.”

But here’s the part often lost in criticising…

From the Centre’s point of view, this isn’t about punishing success. It’s about holding the country together. Large states in the north and centre like Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan still carry enormous welfare burdens - schools, hospitals, salaries, and subsidies – and these don’t pay for themselves. If money doesn’t flow there, inequality hardens, migration intensifies, and national growth becomes fragile.

So redistribution remains the backbone of India’s budget math. Population still matters. Income gaps still matter. And for the Centre, walking away from that would be economically reckless.On the Union Budget 2026, which has triggered sharply different reactions across states, economist D Papa Rao says, “AP stands to gain from initiatives like the rare earths and critical minerals push, which could boost energy, electronics and electric vehicle ecosystems, along with strong support for industrial development, tourism and coastal agriculture. The focus on the East Coast industrial corridor also strengthens AP’s growth prospects.”Notably, Andhra Pradesh Chief Minister Chandrababu Naidu was seemingly happy, calling Budget 2026 a “forward-looking budget”.

For Telangana, Rao says, he's disappointed. “With Hyderabad’s three proposed high-speed rail corridors to Pune, Chennai and Bengaluru seen as the only major takeaway — a move some view through the lens of upcoming GHMC elections,” he says, adding that Kerala has expressed strong dissatisfaction, citing its contribution through tourism, foreign exchange and skilled labour, yet receiving no major allocations, not even an AIIMS, despite being an election year.Stressing that Karnataka is unhappy, and Tamil Nadu even more so, he says, “On the Finance Commission front, the 16th Finance Commission largely continues the 15th Commission’s framework, retaining states’ share at 41 per cent of the Centre’s tax pool, with little change in overall tax devolution. While southern states together are expected to receive around Rs 18,000 – Rs 18,300 crore more than northern states, Tamil Nadu gains only marginally, with most of the benefit going to the other four southern states. That, broadly, defines the regional balance and political sentiment around this budget.”

National Spokesperson of BJP, Sanju Verma, who herself is an economist, counters the notion that nothing substantial has been given to the southern states in the Budget 2026.“Karnataka is the biggest gainer under the 16th Finance Commission. Devolution rises to 4.13% from 3.65%, adding Rs 7387 crore, thereby taking the 2026-31 allocation to Rs 63,050 crore, driven by the new 10% GDP weight, that rewards States contributing more to India’s economy. Suffice to say, in an ode to Modinomics, the Union Budget 2026-27 has reinforced best practices in cooperative federalism, with growth set to take a giant leap forward, without ignoring principles of Equity and Democratization of Development,” she says.

Dr M. Ramulu, Professor of Economics and Chairman, Board of Studies, Department of Economics, Osmania University, said the 16th Finance Commission has retained the states’ share in the divisible pool at 41 per cent for 2026–31, though it could rise to 50 per cent given that most developmental functions are carried out by states. He says that a new 10 per cent weightage for contribution to GDP (SDP) benefits southern states, which contribute significantly to national GDP.He, however, flags concerns over the increase in population weightage from 15 to 17.5 per cent and the reduction in demographic performance weightage from 12.5 to 10 per cent, both of which disadvantage southern states that have controlled population growth and invested in education and skills. Despite this, he stresses, that southern states have received a higher share under vertical distribution, with Tamil Nadu also seeing a marginal increase.

Where the system tries to compromise – but, falls short

Finance commissions know there is a long-running tension between richer, better-governed southern states and poorer northern states that need more support. To manage this, newer Finance Commissions add factors like fiscal discipline, forest cover and demographic performance to take a call on how money is shared and these are meant to reward states that manage their finances well, protect forests, or have controlled population growth — without taking money away from poorer states that still need help.But this balancing act doesn’t fully satisfy anyone. The rewards are too small for high-performing states to feel fairly recognised, and too limited to replace redistribution for poorer states. So the system ends up as a compromise — fairer than before, but still leaving both sides somewhat unhappy.And that’s why Budget 2026 reopened the wound. Not because anything radical changed — but because nothing did, at least that's what the majority southern states allege.