{"id":201205,"date":"2022-08-23T17:16:14","date_gmt":"2022-08-23T11:46:14","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=201205"},"modified":"2022-08-23T17:16:14","modified_gmt":"2022-08-23T11:46:14","slug":"a-centre-state-skew-further-widened","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/a-centre-state-skew-further-widened\/","title":{"rendered":"A Centre-State skew further widened"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article \u201cA Centre-State skew further widened\u201d <\/strong>published in\u00a0The Hindu\u00a0<\/b>on\u00a023rd<\/sup>\u00a0August 2022<\/strong>.<\/p>\n

Syllabus<\/span><\/b>: GS 2: Issues and challenges pertaining to the federal structure.
\n<\/span><\/p>\n

Relevance<\/strong>: To understand the issues of the financial health of States and Centre.<\/p>\n

News<\/strong>: In a NITI Aayog meeting chaired by the Prime Minister, various Chief Ministers expressed their concern about dwindling State revenues. They sought a higher share in the divisible pool of taxes and an extension of GST compensation.<\/p>\n

What is the reason for the poor financial health of States\u2019?<\/h5>\n

a)<\/strong> Slowdown in growth in 2019-20, b)<\/strong> Implementation of the Ujwal DISCOM Assurance Yojana<\/a><\/strong>, c)<\/strong> Providing farm loan waivers, d)<\/strong> Heightened health and other expenses during the pandemic, and e)<\/strong> Revenue shortfall: Due to the reduction in gross tax revenues of states during the pandemic and the States\u2019 share of the Union government\u2019s taxes recorded a steep fall of 15% and 9% in FY20 and FY21, respectively.<\/p>\n

About the financial health of the Centre<\/h5>\n
\"Centre-State
Source: The Hindu<\/figcaption><\/figure>\n

The Union government\u2019s share continued to rise while the state government face financial issues. This is because, a)<\/strong> Even though the Finance Commission raised the States\u2019 share in Central taxes, it didn\u2019t translate into an increase in the actual share devolved as the divisible pool shrank, b)<\/strong> The Centre increased its revenue by levying cesses and surcharges which are not shareable with the States. For instance, their contribution raised from 10.4% in FY12 to 20% by FY21. This has also shrunk the divisible pool of resources.<\/p>\n

About the Centre’s revenue sharing with states and the role of the Finance Commission<\/h5>\n
\"Centre-State
Source: The Hindu<\/figcaption><\/figure>\n

The Constitution grants the Union government more revenue-raising powers while the States are tasked to undertake most of the development and welfare-related responsibilities.<\/p>\n

According to the 15th Finance Commission<\/a><\/strong>\u2019s report, in FY19, the Union government raised 62.7% of the total resources raised by the Union government and States, while States had borne 62.4% of the aggregate expenditure.<\/p>\n

The role of FC to correct the imbalance<\/strong>: The allocation of taxation powers and expenditure responsibilities to centre results in an imbalance. the Constitution provides for sharing of the Union government\u2019s revenue with the States. Successive Finance Commissions (FC) have attempted to reduce the imbalance by increasing the States\u2019 share in Central taxes.<\/p>\n

What is the reason for the persistence of imbalance?<\/strong><\/h5>\n

Though the 14th and 15th FC raised the share of States in gross taxes to over 40%, the actual share never reached the mandated level. At present, the actual devolution has widened to more than 11 percentage points, the highest in at least two decades.<\/p>\n

What is the status of Cess and Surcharge according to the CAG report?<\/h5>\n
\"Cesses
Source: The Hindu<\/figcaption><\/figure>\n

Various cesses and charges are imposed by the government to raise resources. They are transferred to Reserve Funds to ensure that they are being used for the intended purpose. But according to the CAG report, this has not happened.<\/p>\n

For instance, between FY10 and FY20, \u20b91.28 lakh crore was collected as a cess on crude oil. However, not a single penny was transferred to the Oil Industry Development Board (OIDB).<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cA Centre-State skew further widened\u201d published in\u00a0The Hindu\u00a0on\u00a023rd\u00a0August 2022. Syllabus: GS 2: Issues and challenges pertaining to the federal structure. Relevance: To understand the issues of the financial health of States and Centre. News: In a NITI Aayog meeting chaired by the Prime Minister, various Chief Ministers… Continue reading A Centre-State skew further widened<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[212,10498],"class_list":["post-201205","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-2","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/201205","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=201205"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/201205\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=201205"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=201205"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=201205"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}