{"id":285138,"date":"2024-02-29T18:54:17","date_gmt":"2024-02-29T13:24:17","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=285138"},"modified":"2024-02-29T18:54:17","modified_gmt":"2024-02-29T13:24:17","slug":"concerns-in-indias-fiscal-federalism-on-irregularities-in-vertical-devolution","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/concerns-in-indias-fiscal-federalism-on-irregularities-in-vertical-devolution\/","title":{"rendered":"Concerns in India’s Fiscal Federalism – On irregularities in vertical devolution"},"content":{"rendered":"

Source<\/strong>: The post concerns in India’s Fiscal Federalism has been created, based on the article \u201cOn irregularities in vertical devolution<\/strong>\u201d published in \u201cThe Hindu<\/strong>\u201d on 29th February 2024.<\/p>\n

UPSC Syllabus Topic:<\/strong> GS Paper 2-Indian Polity \u2013 Issues and challenges pertaining to the federal structure.<\/p>\n

News<\/strong>: The article discusses the issues in India’s fiscal federalism, focusing on the unfair distribution of tax revenue between the central government and states.<\/p>\n

What are the Concerns in India’s Fiscal Federalism?<\/strong><\/h2>\n

The central government’s increasing retention of tax proceeds<\/strong>, evident in the rising share of cesses and surcharges, is a key concern in India’s fiscal federalism.<\/p>\n

This trend contributes to the shrinking of the divisible pool<\/strong>, with these collections growing from 11.3% of the gross tax revenue in 2009-10 to 16.3% in 2022-23. States face the challenge of more tied transfers, restricting their spending freedom.<\/p>\n

Furthermore, the government’s non-compliance with Finance Commission recommendations <\/strong>on revenue sharing exacerbates the situation, a point underscored by the Comptroller and Auditor General’s (CAG) reports on mismanagement of funds.<\/p>\n

For information on the Issues with Fiscal federalism read here<\/a><\/p>\n

Why is there shrinking of divisible pool?<\/strong><\/h2>\n

Introduction of Cesses and Surcharges:<\/strong> The central government has been introducing new cesses and surcharges, like the Agriculture Infrastructure and Development Cess in 2021-22, and retaining them exclusively.<\/p>\n

Exclusion from Divisible Pool<\/strong>: These cesses and surcharges are excluded from the net divisible pool, which is the portion of tax revenue shared with states.<\/p>\n

Rising Share of Exclusions:<\/strong> The proportion of tax revenue excluded has increased significantly, from 11.3% of the gross tax revenue in 2009-10 to 16.3% in 2022-23.<\/p>\n

What indication has been given by CAG on sharing of resources between the Union and States?<\/strong><\/h2>\n

Non-Transfer or Short Transfer of Cesses: <\/strong>The Comptroller and Auditor General (CAG) highlighted instances where cesses collected were either not transferred or inadequately transferred to designated funds.<\/p>\n

Specific Examples of Mismanagemen<\/strong>t: For instance, only 60% of the Health and Education Cess collected in 2021-22 was transferred to its reserve fund. Similarly, a small fraction (9.6%) of the Research and Development Cess collected over two decades was transferred to its respective fund.<\/p>\n

Large Scale of Discrepancy: <\/strong>The extent of short transfers is substantial, with billions not reaching the intended funds. This includes shortfalls in the Swachh Bharat Cess and under-transfers in the Road Cess and Clean Energy Cess.<\/p>\n

How is the spirit of cooperative fiscal federalism diluting?<\/strong><\/h2>\n

Deviation from Finance Commission’s Recommendations: <\/strong>The Union government has not fully adhered to the Finance Commission’s recommended sharing rates. For instance, during the 15th Finance Commission period, the share actually devolved was only 38.1%, below the recommended 41%.<\/p>\n

Rise in Tied Transfers:<\/strong> States are receiving more funds tied to specific central schemes, restricting their ability to allocate resources based on local needs.<\/p>\n

Credit Usurpation by the Union Government: <\/strong>There’s a tendency of the Union government to take credit for projects, even when states contribute significantly, undermining the partnership principle in fiscal federalism.<\/p>\n

Conditionalities on Grants:<\/strong> Several grants to states are contingent on fulfilling certain conditions, including the insistence on specific labelling, which imposes Union government preferences over state priorities.<\/p>\n

What reforms are needed to address these issues?<\/strong><\/h2>\n

1.The 16th Finance Commission should compensate states for historical wrongs in devolution.<\/p>\n

    \n
  1. Accurate estimates of “net proceeds” should be published in budget documents.<\/li>\n
  2. Union government should legislate strict limits on the collection of cesses and surcharges.<\/li>\n<\/ol>\n

    Question for practice:<\/p>\n

    Discuss how the principles of cooperative fiscal federalism are being undermined in India.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Source: The post concerns in India’s Fiscal Federalism has been created, based on the article \u201cOn irregularities in vertical devolution\u201d published in \u201cThe Hindu\u201d on 29th February 2024. UPSC Syllabus Topic: GS Paper 2-Indian Polity \u2013 Issues and challenges pertaining to the federal structure. News: The article discusses the issues in India’s fiscal federalism, focusing… Continue reading Concerns in India’s Fiscal Federalism – On irregularities in vertical devolution<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,1234],"tags":[212,225,10498],"class_list":["post-285138","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-polity-current-affairs","tag-gs-paper-2","tag-polity","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\/285138","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\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=285138"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/285138\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=285138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=285138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=285138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}