đŸ’„Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: GS2

  • 15th Finance Commission could catalyse accountability, effective governance at grassroots

    The article explains the innovative approach adopted by the Fifteenth Finance Commission in devolution of funds.

    Steep hike in grants

    • Local governments are the closest to the people at the grassroots level. 
    • They provide critical civic amenities such as roads, water and sanitation, and primary education and health.
    • With this in view, the Fifteenth Finance Commission (FFC) has recommended grants of Rs 4,36,361 crore from the Union government to local governments for 2021-26.
    • This is an increase of 52 per cent over the corresponding grant of Rs 2,87,436 crore by its predecessor for 2015-20.

    Innovation in recommendations

    1) Scaling of capacities in municipalities

    • The Commission has recommended Rs 8,000 crore as performance-based grants for incubation of new cities and Rs 450 crore for shared municipal services.
    • This is designed to foster innovations in urban governance to transform our cities with speed and scale.
    • There is an urgent need for synergistically combined area-based development to spur economic growth and job creation, and decongesting through the development of satellite townships.
    • Separately, the massive scaling of capacities in municipalities, particularly the 4,000-odd smaller ones, cannot be done by building capacities in each one of them, but through institutional and technological innovations, without compromising their autonomy.
    • The shared municipal services model, with mobile internet, maps, platform thinking, and outsourced services all taken together, can help us fast-track the creation of municipal capacities at scale.
    • This is one of the innovations in the FFC recommendations.

    2) Allocation covers all three tiers of panchayats

    • Of grants for all local governments with 90 per cent weightage on population and 10 per cent on area remains unchanged from the Fourteenth Finance Commission.
    • For panchayats, the FFC allocations cover all the three tiers — village, block, and district — as well as the Excluded Areas in a state exempted from the purview of Part IX and Part IX-A of the Constitution.
    • Funds to all three can improve functional coordination and facilitate the creation of assets collectively across smaller jurisdictions.
    • This is the second new aspect of the FFC recommendations.

    3) Focus on metropolitan governance

    • The FFC calls for a focus on urban agglomerations (UAs) that include urban local bodies, census towns and outgrowths.
    • In 2011, out of the total urban population of 377 million, 61 per cent lived in UAs.
    • The FFC has emphasised the need to focus on the complex challenges of air quality, drinking water supply, sanitation, and solid waste management in the million-plus UAs and cities.
    • Thus, for 2021-26, there is a Million-plus Challenge Fund of Rs 38,196 crore that can be accessed by million-plus cities only through adequate improvements in their air quality and meeting service level benchmarks for drinking water supply, sanitation, and solid waste management.
    • This focus on metropolitan governance through substantive but 100 per cent outcome-based grants is the third innovation.
    • For ULBs other than the million-plus category, the total grants are Rs 82,859 crore.
    • The grants to local governments, both urban (less than a million category) and rural, contain a mix of basic, tied as well as performance grants.

    4) Entry-level conditions

    • The efficiency, smooth functioning and accountability of local bodies have been plagued by:
    • (i) lack of readily accessible and timely audited accounts,
    • (ii) absence of timely recommendations of State Finance Commissions and suitable actions thereon,
    • (iii) inadequate mobilisation of property tax revenues (especially in ULBs).
    • Finance Commissions in the past have drawn pointed attention to these issues, but with limited success.
    • These entry-level conditions for availing any grants and their applicability to all local governments is the fourth innovation.

    Consider the question “Examine the innovative approach adopted by the Fifteenth Finance Commission for the devolution of funds to panchayats and municipal bodies.”

    Conclusion

    Hopefully, over the next five years, through a partnership among the Union, states, and local governments, in the spirit of cooperative federalism, these recommendations and innovations will catalyse progress in the accountability and effectiveness of local governments in India.

     

  • Reform lessons for education

    The article deals with state of the education and its relation with employment in India.

    Improving higher education system

    • Improving India’s higher education justice and worker productivity needs the broadening of our education ambition.
    • Our focus on Gross Enrollment Ratio should also be anchored to Employed Learner Ratio -proportion of our 55 crore labour force in formal learning.
    • For enrolling five crore new employed learners, India needs five regulatory changes.

    Reflecting on global and domestic education experience

    • Multi-decade structural changes include  organisations that are less hierarchical, lower longevity, shorter employee tenures, higher competition.
    • There is also change in the form of work: capitalism without capital, soft skills valued more than hard skills, 30 per cent working from home etc.
    • There change in the form of education in which Google knows everything, so tacit knowledge is more valuable than codified or embedded knowledge.
    • These shifts are complicated by a new world of politics, third-party financing viability, and fee inflation.

    India faces financing failure in skill

    • We have 3.8 crore students in 1,000-plus universities and 50,000-plus colleges.
    • We confront a financing failure in skills:
    • Employers are not willing to pay for training of candidates but a premium for trained candidates.
    • Candidates are not willing to pay for training but for jobs.
    • Financiers are unwilling to lend unless a job is guaranteed, and training institutions can’t fill their classrooms.

    Steps need to be taken

    • For many people the income support of learning-while-earning is crucial to raising enrollment.
    • Many students lack employability and workers lack productivity because learning is supply-driven.
    • Learning-by-doing ensures demand-driven learning.
    • The de facto ban on online degree learning with only seven of our 1,000-plus universities licensed for online offerings.
    • That needs to be changed.
    • High regulatory hurdles creates an adverse selection among entrepreneurs running educational institutions.

    Five regulatory changes

    • First, modify Part 3 of the UGC Act 1956 and Part 8 of the UGC Act to include skill universities.
    • Second, remove clauses 3(A), 3(B), and clause 5 of UGC ODL and Online Regulations 2020 and replace them with a blanket and automatic approval for all accredited universities to design, develop and deliver their online programmes.
    • Third, modify clause 4(C)(ii) of UGC online regulations 2020 to allow innovation, flexibility, and relevance in an online curriculum as prescribed in Annex 1-(V)-3-i) that allows universities to work closely with industry on their list of courses.
    • Fourth, modify clauses 13(C)(3), 13(C)(5), 13(C)(7), 18(2) of UGC online regulations 2020 to permit universities to create partner ecosystems for world-class online learning services, platforms, and experience.
    • Fifth, introduce Universities in clause 2 of the Apprentices Act 1961 to enable all accredited universities to introduce, administer and scale all aspects of degree apprenticeship programs.
    • These five changes would enable enrolling five crore incremental employed learner.

    Conclusion

    Reforming education requires thinking horizontally, holistically, and imaginatively. The reforms suggested here should be carried out considering these aspects.

  • What is a Money Bill?

    In a pre-emptive move, the opposition has written to Lok Sabha Speaker, urging him not to bypass the Rajya Sabha by declaring key Bills as “money bills”.

    What is a Money Bill?

    • A money bill is defined by Article 110 of the Constitution, as a draft law that contains only provisions that deal with all or any of the matters listed therein.
    • These comprise a set of seven features, broadly including items such as-
    1. Imposition, abolition, remission, alteration or regulation of any tax
    2. Regulation of the borrowing of money by the GOI
    3. Custody of the Consolidated Fund of India (CFI) or the Contingency Fund of India, the payment of money into or the withdrawal of money from any such fund
    4. Appropriation of money out of the CFI
    5. Declaration of any expenditure charged on the CFI or increasing the amount of any such expenditure
    6. Receipt of money on account of the CFI or the public account of India or the custody or issue of such money, or the audit of the accounts of the Union or of a state
    7. Any matter incidental to any of the matters specified above.

    Who controls such bills?

    • In the event proposed legislation contains other features, ones that are not merely incidental to the items specifically outlined, such a draft law cannot be classified as a money bill.
    • Article 110 further clarifies that in cases where a dispute arises over whether a bill is a money bill or not, the Lok Sabha Speaker’s decision on the issue shall be considered final.

    What surrounds the ‘Money Bill’ controversy?

    • While all Money Bills are Financial Bills, all Financial Bills are not Money Bills.
    • For example, the Finance Bill which only contains provisions related to tax proposals would be a Money Bill.
    • However, a Bill that contains some provisions related to taxation or expenditure, but also covers other matters would be considered a Financial Bill.
    • Again, the procedure for the passage of the two bills varies significantly. The Rajya Sabha (where the ruling party might not have the majority) has no power to reject or amend a Money Bill.
    • However, a Financial Bill must be passed by both Houses of Parliament.
    • The Speaker (nonetheless, a member of the ruling party) certifies a Bill as a Money Bill, and the Speaker’s decision is final.
    • Also, the Constitution states that parliamentary proceedings, as well as officers responsible for the conduct of business (such as the Speaker), may not be questioned by any Court.

    Back2Basics:

    What is Finance Bill?

  • Proposed amendments to the Juvenile Justice Act, 2015

    The Union Cabinet has approved a slew of amendments to the Juvenile Justice (Care and Protection of Children) Act, 2015.

    What are the key features of Juvenile Justice (Care and Protection of Children) Act, 2015? Discuss the proposed amendments by the WCD ministry.

    Juvenile Justice Act, 2015

    • The JJ Act, 2015 replaced the Indian juvenile delinquency law, Juvenile Justice (Care and Protection of Children) Act, 2000.
    • It allows for juveniles in conflict with Law in the age group of 16–18, involved in Heinous Offences, to be tried as adults.
    • The Act also sought to create a universally accessible adoption law for India.
    • The Act came into force from 15 January 2016.

    Key features

    • Change in nomenclature from ‘juvenile’ to ‘child’ or ‘child in conflict with law’, across the Act to remove the negative connotation associated with the word “juvenile”
    • Inclusion of several new definitions such as orphaned, abandoned and surrendered children; and petty, serious and heinous offences committed by children;
    • The Act mandates setting up Juvenile Justice Boards and Child Welfare Committees in every district. Both must have at least one woman member each.
    • Special provisions for heinous offences committed by children above the age of sixteen years – Under Section 15, special provisions have been made to tackle child offenders committing heinous offences in the age group of 16-18 years (in response to the juvenile convict in Nirbhaya Case).
    • Separate new chapter on Adoption to streamline adoption of orphan, abandoned and surrendered children – To streamline adoption procedures for orphan, abandoned and surrendered children, the existing Central Adoption Resource Authority (CARA) is given the status of a statutory body.
    • Inclusion of new offences committed against children – Sale and procurement of children for any purpose including illegal adoption, corporal punishment in child care institutions, use of child by militant groups, offences against disabled children and, kidnapping and abduction of children.
    • Penalties for cruelty against a child– offering a narcotic substance to a child, and abduction or selling a child has been prescribed.
    • Mandatory registration of Child Care Institutions

    What are the news amendments?

    The amendments are aimed at strengthening the Child Protection set-up to ensure the best interest of children.

    (A) More powers to the DM

    • These include empowering the DMs and the additional DMs to monitor the functioning of agencies responsible for implementing the JJ Act.
    • The District Child Protection Units will function under the DMs.

    (B) Evaluating shelter homes

    • Before someone sets up a shelter home for children and sends their proposal for registration under the JJ Act to the State, a DM will have to assess their capacity and conduct a background check.
    • A DM could also independently evaluate the functioning of the Child Welfare Committee, Special Juvenile Protection Units and registered childcare institutes, the Minister stated.

    (C) Members of committees

    • The proposed amendments also define the eligibility parameters for the appointment of members of the Child Welfare Committees.
    • These committees are tasked to decide on children in need of care and protection and mandate their background checks.

    (D) Definition of Children

    • It is also proposed to expand the definition of children in need of care and protection and include those children who have been victims of trafficking or drug abuse or child labour.
    • It would also include those children who have been abandoned by their guardians.

  • What is Extinction Rebellion?

    Delhi Police have named some environmental activists who are volunteers of a global environment movement seeking to call attention to the climate change emergency, in the Greta Thunberg ‘toolkit’ case.

    Q.Climate activism is increasingly turning into a propaganda movement. Discuss.

    What is Extinction Rebellion?

    • The global movement Extinction Rebellion also referred to as ‘XR’, describes itself as a decentralized, international and politically non-partisan movement using non-violent direct action and civil disobedience.
    • It aims to persuade governments to act justly on the Climate and Ecological Emergency.
    • XR was launched in the UK on October 31, 2018, as a response to a report by the United Nations Intergovernmental Panel on Climate Change (IPCC).
    • It had then declared that we only have 12 years to stop catastrophic climate change and our understanding that we have entered the 6th mass extinction event.
    • The movement now has a presence in 75 countries, including India.

    What does XR want?

    • The group has “three core demands” of governments around the world.
    • It wants governments to “Tell the Truth”, to “Act Now”, and to “Go Beyond Politics” in order to confront the climate and ecological emergency that the world is faced with.
    • It wants them to communicate the urgency to bring change, and reduce greenhouse gas emissions to net-zero by 2025.
    • XR seeks to “rebel”, and asks groups to “self-organise”, without the need for anyone’s permission, to come up with collective action plans as long as they adhere to the group’s core principles and values.

    What activities have XR done so far?

    • The group had announced a “Declaration of Rebellion” at launch, involving a public act of civil disobedience in London, demanding that the government reduce carbon emission to zero by 2025.
    • The eventual plan was to coordinate actions in other countries and to engage in an “International Rebellion” in March 2019.
    • The XR global website, however, states that the movement is “strictly non-violent”, and that they are “reluctant law-breakers”.
    • In April 2019, Greta Thunberg, the teenage Swedish climate activist, lent her support to the group by speaking to its members in London.

    XR and India

    • The movement claims to have been inspired by 15 major civil disobedience movements around the world, including, apart from Women’s Suffrage and the Arab Spring, India’s struggle for Independence.
    • It refers to Mahatma Gandhi’s Salt March in 1930.
    • XR’s website says there are 19 groups in the country, including in the cities of Mumbai, Pune, Delhi, Hyderabad, Bengaluru, Kolkata, and Chennai.

    Recent events

    • One of the group’s early public events was a “die-in” protest organised at Bandra Reclamation in Mumbai in October 2019.
    • Participants at “die-in” protests lie on the ground, pretending to be dead.
    • Since the city was already seeing protests against the felling of trees at Aarey Colony for the Metro crashed, police did not grant permission for the “die-in” protest.

  • vaccine hesitancy

    Reluctance to take the vaccine has several implications. The misinformation around the vaccines needs to be fought through several measures. 

    Understanding vaccine hesitancy

    • According to the World Health Organization, vaccine hesitancy is defined as a reluctance or refusal to vaccinate despite the availability of vaccine services.
    • To date, two vaccines have been approved for inoculation in India: Pune-based Serum Institute’s Covishield and Hyderabad-based Bharat Biotech’s Covaxin.
    • An adequate supply of vaccines is in place at least for the first phase, but the trickier part is to persuade the population for vaccination.
    • Like Western nations, vaccine hesitancy has been a cause of concern in the past in India as well.
    • Social media has seen a rising number of self-proclaimed experts who have been making unsubstantiated claims.
    • The debates around hesitancy for COVID-19 vaccines include concerns over safety, efficacy, and side effects due to the record-breaking timelines of the vaccines, competition among several companies, misinformation, and religious taboos.

    Need to adopt libertarian paternalism

    • It is suggested that we adopt the idea of libertarian paternalism, which says it is possible and legitimate to steer people’s behaviour towards vaccination while still respecting their freedom of choice.
    • Vaccine hesitancy has a different manifestation in India, unlike in the West.
    • According to the World Economic Forum/Ipsos global survey, COVID-19 vaccination intent in India, at 87%, exceeds the global 15-country average of 73%.

    Way forward

    • Instead of anti-vaxxers, the target audience must be the swing population i.e., people who are sceptical but can be persuaded through scientific facts and proper communication.
    • The second measure is to pause before you share any ‘news’ from social media.
    • It becomes crucial to inculcate the habit of inquisitive temper to fact-check any news related to COVID-19 vaccines.
    • The third measure is to use the celebrity effect — the ability of prominent personalities to influence others to take vaccines.
    • Celebrities can add glamour and an element of credibility to mass vaccinations both on the ground and on social media.

    Consider the question “What is vaccine hesitancy? Suggest the measures to deal with it”

    Conclusion

    The infodemic around vaccines can be tackled only by actively debunking myths, misinformation and fake news on COVID-19 vaccines.

  • In difficult times, Fifteenth Finance Commission rose to the challenge

    The article analyses the various recommendations of the Fifteenth Finance Commission and their impact.

    Unique challenges

    • Many new and unique demands were placed on the 15th Finance Commission.
    • The major challenge being addressing the issue of the 2011 population census evoking a sharp response from the southern states.
    • Other issues include the non-lapsable defence fund and the use of certain parameters for performance incentives.
    • The Commission was also required to perform the task of assessing and projecting the fiscal roadmap for the Union and state amid an uncertain domestic environment due to shortfall in the GST collection, further accentuated in the year 2020 by the global pandemic.

    Key recommendations

    The Commission, in its final report, recommended vertical devolution at 41 per cent, adjusting 1 per cent for the erstwhile state of Jammu and Kashmir.

    1) Horizontal distribution

    • For horizontal distribution, the commission has tried to harmonise the principles of expenditure needs, equity and performance.
    • This is achieved by the introduction of efficiency criteria of tax and fiscal efforts and by assigning 12.5 per cent weight to demographic performance.
    • Consideration of demographic performance will help in resolving the demographic debate and incentivising states in moving towards the replacement rate of population growth.

    2) Principles governing grant-in-aid

    • Grants are important as they are more directly targeted and equalise the standards of basic social services to some extent.
    • The Commission has recommended a total grant of Rs 10,33,062 crore during 2021-26.
    • Grant is broadly characterised into: (a) revenue deficit grants (b) grants for local governments (c) grants for disaster management (d) sector-specific grants and (e) state-specific grants.
    • Many of these grants are linked with performance-based criteria, thereby promoting principles of transparency, accountability, and leading to better monitoring of expenditures.
    • However, the Commission was asked to examine whether revenue deficit grants should be provided at all to the states.
    • Some states stressed that revenue deficit grants have serious disincentives for tax efforts and prudence in expenditure and, hence, these should be discontinued.
    • Fiscally stressed states of Kerala, West Bengal and Punjab are regular recipients of these grants due to high debt legacy.

    3) Conditional grants to local bodies

    • This Commission’s grant for local government is different from that of its predecessors for the set of entry-level conditions:
    • (a) Constitution of State Finance Commissions.
    • (b) Timely auditing and online availability of accounts for rural local bodies coupled with
    • (c) Notifying consistent growth rate for property tax revenue for urban local bodies.
    • Secondly, the recommendations are in alignment with the national programmes of Swachch Bharat Mission and Jal Jeewan Mission.

    4) Incubation of new cities and urban grants

    • It is for the first time that a Finance Commission has recommended Rs 8,000 crore to states for incubation of new cities, granting Rs 1,000 crore each for eight new cities.
    • The focus of urban grants for million-plus cities is improvement in air quality and meeting the service level benchmark of solid waste management and sanitation.

    5) Grants for health and setting up of disaster mitigation fund

    • The commission recommended channelising the health grant of Rs 70,051 crore through local bodies, addressing the gaps in primary health infrastructure.
    • The Commission’s recommendation for setting up the state and national level Disaster Risk Mitigation Fund (SDRMF), in line with the provisions of the Disaster Management Act, is both well-timed and necessary.
    • For the first time, the Finance Commission has introduced a 10-25 per cent graded cost-sharing basis by the states for the NDRF and NDMF which has not been appreciated by the states.

    6) Non-lapsable fund for defence

    • The Commission has recommended setting up of a dedicated non-lapsable fund, the Modernisation Fund for Defence and Internal Security (MFDIS).
    • Objective of the fund is to bridge the gap between projected budgetary requirements and budget allocation for defence and internal security and to provide greater predictability for enabling critical defence capital expenditure.
    • The fund will have four specific sources: (a) Transfers from the Consolidated Fund of India, (b) disinvestment proceeds of DPSEs, (c) proceeds from the monetisation of surplus defence land and (d) proceeds of receipts from defence land likely to be transferred to state governments and for public projects in the future.
    • The total indicative size of the proposed MFDIS over the period 2021-26 is Rs 2,38,354 crore.
    • The Union government has accepted this recommendation in principle.

    Consider the question “Examine the various principles on which the Fifteenth Finance Commission based the horizontal distribution of states share.”

    Conclusion

    The report starts with the famous quote of Mahatma Gandhi: “The future depends on what we do in the present”. It would be interesting to see the impact of these overarching and revolutionary recommendations in the times ahead.

  • New York Convention

    Cairn Energy has filed a case in a U.S. district court to enforce a $1.2 billion arbitration award it won in a tax dispute against India. Cairn aims to enforce the award under international arbitration rules, commonly called the New York Convention.

    New York Convention

    • The Convention on the Recognition and Enforcement of Foreign Arbitral Awards is commonly known as the New York Convention.
    • It was adopted by a UN diplomatic conference on 10 June 1958 and entered into force on 7 June 1959.
    • It requires courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states.
    • Widely considered the foundational instrument for international arbitration, it applies to arbitrations that are not considered domestic awards in the state where recognition and enforcement are sought.

    What was the case?

    • The Indian government has lost an international arbitration case to energy giant Cairn Plc over the retrospective levy of taxes and has been asked to pay damages worth $1.2 billion to the UK firm.
    • The Permanent Court of Arbitration at The Hague has maintained that the Cairn tax issue is not a tax dispute but a tax-related investment dispute and, hence, it falls under its jurisdiction.
    • India’s demand in past taxes, it said, was in breach of fair treatment under the UK-India Bilateral Investment Treaty.

  • Protecting freedom in era of technological transformation

    The article discusses the issue of growing influence of social media companies and response of the governments.

    Issues with the growing influence of social media companies

    • In the US the last two general elections in 2016 and 2020 have seen strong charges of political manipulation by social media companies.
    • But influence of social media companies is not limited ot elections, it envelops a range of domestic and international issues.
    • These issuesincludes: the concentration of economic power, individual rights against the state as well as the corporation, disinformation, the rise of digital geopolitics, and global digital governance.

    How governments are responding

    •  Democratic forces need to consult each other and collaborate in developing new norms for managing the digital world.
    • In the US, both the left and right are demanding that digital behemoths like Amazon, Google, Facebook and Twitter are brought under greater control if not broken up.
    • Last December, the European Commission proposed new rules to promote competition and fairness in digital markets.
    • The EU is likely to approve a Digital Markets Act next year.
    • Australia has decreed that Google must work out an arrangement with Australian newspapers to pay for the use of their content.
    • The current digital giants, however, are not easily amenable to political attack.
    • They are bigger than the biggest we have known.

    3 Issues with business practices of social media companies

    • Governments are now questioning the sharp business practices of the tech giants especially labour rights, taxes and politics.
    • While the tech giants have created a lot of new wealth, some of them have sharply squeezed the labour.
    • In California, trade unions are battling against the success of Uber and Lyft to turn employees into “contract workers” to deny them multiple benefits.
    • Digital giants have been aggressive tax evaders.
    • On the political front recently,Twitter and Facebook shut down President Donald Trump’s accounts.
    • European leaders raised important questions about social media’s actions against Trump.

    Way forward

    • Answer to deal with social media on political front lies in laying down a clear set of obligations and responsibilities for the digital giants.
    • This move will help in building digital sovereignty.
    • The world’s democracies must get together to discuss global digital governance.

    Consider the question “What are the challenges posed by the growing influence of social media companies in the democratic countries?” 

    Conclusion

    As governments push back against big tech, a new challenge presents itself — reining in the growing power of the state in the digital age. The answer lies in democracies modernising their laws to protect freedoms in the era of technological transformation.

  • Finance Commission dips into states’ share for Centre’s expenditure

    The article analyses the recommendations of fifteenth Finance Commission and their implications for the federalism in India.

    Major recommendations accepted by the government

    • Report of the fifteenth Finance Commission (XVFC) was laid before the Parliament.
    • The finance minister announced the acceptance of its recommendation of retaining the share of states in central taxes at 42 per cent.
    • She also stated that on its recommendation revenue deficit grants of Rs 1.18 lakh crore to the states have been provided for in the budget.
    • Some of the recommendations, however, have far-reaching implications on government finances, both of the Centre and the states.
    • Keeping in view the extant strategic requirements for national defence in a global context, XVFC has, in its approach, recalibrated the relative shares of the Union and the states in gross revenues receipts.

    Issues with the recalibration for national defence

    • Recalibration enables the Union to set aside resources for special funding on defence.
    • The states have been made to pay Rs 7,000 crore to bridge [the] Centre’s gap between projected budgetary requirements and budget allocation for defence and internal security defence.
    • But this is an expenditure that the Centre is obliged to fund.
    • For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation.
    • What has been done is not in line with the system envisaged in the Constitution.
    • This move will eventually put the fiscal federal system under systemic strain.
    • In operational terms, too, this move is a significant departure.
    • So far, the Centre has been used to pre-empting resources from the kitty to be distributed among the states but only to finance expenditures in areas earmarked for states.
    • This was done through the centrally-sponsored schemes, but at least the states’ money was being used in the states, even if on a discretionary rather than a criteria basis.
    • Now, with this move of earmarking and financing of funds for sectors, it is the states’ money that is being used to finance the Centre’s expenditure.
    • This is certainly not cooperative federalism.

    Changes in horizontal distribution: More weightage to efficiency and performance

    • In horizontal distribution, the criteria used by successive finance commissions for devolving taxes across states have always been linked to need — based on equity, tempered by efficiency.
    • From 92.5 per cent of funds to a state being devolved based on need and equity, the XVFC has reduced these two components to 75 per cent.
    • The remaining 25 per cent are to be devolved on considerations of efficiency and performance.
    • This is the lowest weightage for equity, making the XVFC transfers potentially the least progressive ever.

    Structural changes not taken into account

    • The Finance Commission has not even made any serious effort to review the existing scheme of transfers in light of the changed federal landscape.
    • The existing criteria for the devolution have evolved in, and for, a production-based tax system.
    • The XVFC should have reformulated the distributional criteria for a consumption-based tax system [GST].
    • The structural change from production to consumption will make a significant difference to distribution as well as the need, nature and distribution of equalising grants.
    • This is the same manner in which the revenue deficit grants have been carried forward.
    • Ideally, the “gap-filling” approach should have been redesigned in light of the compensation law providing a minimum-guaranteed revenue of 14 per cent to every state.

    Consider the question “For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation. What are the issues with this move?”

    Conclusion

    The Fifteenth Finance Commission report is not aligned with the new landscape of federalism and does not address the key issues.