Context: The ability of the States to expand revenue has been constrained since the Goods and Services Tax (GST) regime was adopted.
More on the news:
- The Central government’s resource mobilisation space vis-a-vis that of the States is now far greater.
- While both centre and states face a very challenging fiscal environment, the Centre, instead of finding mutually beneficial solutions, has repeatedly opted to undermine the current and future fiscal capacities of the States.
Need of resources for states
- State governments currently drive a majority of the country’s development programmes. Greater numbers of people depend on these programmes for their livelihood, development, welfare and security.
- Therefore, a varied economic growth and income levels across States confirm the primacy of State governments in the economic sphere as well. States need resources to deliver these responsibilities and aspirations.
Non following of Finance commissions recommendations
- Finance Commissions recommend the share of States in the taxes raised by the Union government. Their recommendations are normally adhered to.
- However, the Union government has discarded this constitutional obligation. Prior to 2014, devolution of funds to the States were consistently and cumulatively more than 13th Finance Commission’s projections.
- The year 2014-15 commenced with a shock: actual devolution was 14% less than the Finance Commission’s projection.
- Later on, the devolutions have been consistently less every year, ending the period 2019-20 with a whopping -37%.
- Between 2014-15 and 2019-20, the State governments got 7,97,549 crore less than what was projected by the Finance Commission.
About the Finance Commission
- The Finance Commission is a Constitutional body that is at the centre of fiscal federalism.
- Set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States.
- The Finance Commission has to be reconstituted every five years. The Constitution doesn't talk about whether it should be continuous or not continuous.
- It is a quasi judicial body.
- Its recommendations are advisory in nature.
The 15th Finance Commission: The interim report of the 15th Finance Commission (FC) under chairmanship of N.K. Singh has been tabled in Parliament this budget session.
- The 15th Finance commission makes recommendations for the period of 2020-2025 (5 years).
States are at the forefront of development and generation of opportunities and growth. Strong States lead to a stronger India. The systematic weakening of States serves neither federalism nor national interest.