States are showing concerns regarding increasing encroachment by the Centre in fiscal Space. In this context suggest how can spirit of fiscal federalism be maintained.(250 words)

The Constitution of India has provided provisions which enable the Union and the States to work in coordination and to levy and collect taxes through systematic arrangements. However the fiscal relations have undergone significant changes in recent years. Three landmark changes subsequent creation of the NITI Aayog; higher tax devolution to the states based on the recommendations of the Fourteenth Finance Commission (14 th  FC); and Goods and Services Tax (GST).

Following are the concerns regarding increasing encroachment by the Centre in fiscal Space-
1. Vertical Imbalance in Resource Sharing-
 The States have been nursing a feeling that the resource transfers to them have not been commensurate with their growing responsibilities. For instance, Central Government collects around 60% of the total taxes, while its expenditure responsibility (for carrying out its constitutionally mandated responsibility such as defense, etc.) is only 40% of the total public expenditure.

2. A “fragmented” transfer i.e. Conditional and Unconditional Grants is an important feature of the Indian federal fiscal arrangements between the union and the states.

3. Growing Central Expenditure on Functions in the State List. Growing discretionary transfers from the Centre have severely constrained the States in drawing and implementing schemes according to their priorities and the felt needs of people.

4. There are a number of Central legislations, the compliance and enforcement cost of which are entirely borne by the States. Central legislations, such as, the Environment Protection Act, the Wildlife Protection Act etc. At present, States are not compensated for the cost of compliance and the revenue loss on account of compliance.

5. The realization from the sale of spectrum mainly depends on the market for telecom and related services available in a State, but accrued entirely by the Centre.

6. The TOR of the 15 th  FC have also raised concerns.
 Among a group of southern states on the use of the population of each state as recorded in the 2011 census for the determination of resource needs.
 Measurable performance-based incentives as an effort to introduce conditionality-driven transfers through the Finance Commission.

The Punchi Commission has made recommendations to strengthen the fiscal relations which are as follows-
1. A comprehensive review of all transfers to States with a view to minimizing the component of discretionary transfers, particularly those channeled through CSS.
2. As the resources at the command of the States are limited, we recommend higher Central transfers to backward States to enable them to improve their physical and human infrastructure.
3. A part of the sale proceeds of spectrum should be devolved to States for expenditure on infrastructure projects.
4. The current ceiling on profession tax should be completely done away with by a Constitutional amendment.
5. All future Central legislations involving States’ involvement should provide for cost sharing as in the case of the RTE Act. Existing Central legislations where the States are entrusted with the responsibility of implementation should be suitably amended providing for sharing of costs by the Central Government.
6. The ToR of future Finance Commissions should be formulated in such a way that the additional commitments of States on account of pay revision are fully taken into account.

Creating the new fiscal federal architecture based on the effective decentralization, transparent GST regime, independent Finance commission and effective NITI Aayog can strengthen India’s unique cooperative federalism.

14 Comments
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Borne
Borne
3 years ago

Please Review

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Parth Verma
Editor
3 years ago
Reply to  Borne

Hi Mud Borne
Your intro is decent.
You have discussed only the aspects of finance commission in your main body but failed to mention other aspects like GST; Growing Central Expenditure on Functions in the State List; the compliance and enforcement cost of many central legislation which are entirely borne by the States such as, the Environment Protection Act, the Wildlife Protection Act etc; spectrum policy etc.
Always try to discuss various dimensions.
Way forwards are good but they will be incomplete if you dont mention Punchi Commission recommendations.

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sourav singh
sourav singh
3 years ago

Q2

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sourav singh
sourav singh
3 years ago
Reply to  sourav singh

Not checked

Parth Verma
Editor
3 years ago
Reply to  sourav singh

How can it be checked the same day!!! Please stop writing “not checked” on every submission of yours.

Parth Verma
Editor
3 years ago
Reply to  sourav singh

Hi Sourav
Some sort of intro is required in the answer. You have started the answer right away.
The main body is ok but you have missed various other dimensions like: GST; Growing Central Expenditure on Functions in the State List; the compliance and enforcement cost of many central legislation which are entirely borne by the States such as, the Environment Protection Act, the Wildlife Protection Act etc; spectrum policy etc.
Do mention recommendations of Punchi Commission in your way forward.
You can enlarge the width and depth of your discussion. Because you will have 3 pages for 250 words questions.

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4
Murari Jha
Murari Jha
3 years ago

q2
MOJO9708E00A65259027

Parth Verma
Editor
3 years ago
Reply to  Murari Jha

Good intro.
1st part is quite comprehensive and content is rich.
Way forwards are decent as well.
But you have to mention puncchi commission in the way forward.
Apart from that, there is nothing to improve in the answer.

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SUMONA DEY
SUMONA DEY
3 years ago

MOJO9727T00D60304985

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Parth Verma
Editor
3 years ago
Reply to  SUMONA DEY

Hi Sumona
Very good answer.
Your content is good.
Explanation is on expected lines.
But you can explore the issue more.
Do mention Puncchi Commission in your way forward.

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4
pranab prakash
pranab prakash
3 years ago

Payment ID MOJO9611300N14575632
Q2

Parth Verma
Editor
3 years ago
Reply to  pranab prakash

Dont start with statements like “recent outcry” or “fresh salvo”. Avoid rhetoric in your answer.
The first part of the answer is missing and after intro, you have ended the answer by just mentioning the way forwards.
What are the provisions in the constitution that look after the Center State Fiscal Relations?
What are the recent issues between States and Center?
You failed to mention these elements which are quite important.
Way forwards are ok but you missed to discuss the recommendations from Puncchi Commission.
Answer is half baked and lacks depth, content, structure etc.

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2
avani k
avani k
3 years ago

Q2

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Parth Verma
Editor
3 years ago
Reply to  avani k

Your answer is good.
You have covered all the dimensions and structure is decent.
Both the parts in the main body have perfect balance and points are good.
To make this answer perfect, mention some of the recommendations of Punchi Commission.
Good conclusion.

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