The restrictions imposed under Article 293 of the Constitution on State borrowing powers, though constitutionally valid, may hinder fiscal autonomy of States and disrupt cooperative federalism. Discuss in the light of recent developments.

Cooperative Federalism + Fiscal autonomy hindered

1. State prerogative and fiscal depravement

   • fetters on Article 293 go after state PSUs

2. States demand 'federalism' in fiscal discipline

   • demand for easing foreign borrowing

3. GST compensation lag quoted as reason ↓ state-funds cut down eg 'destination based tax affects south disproportionatly

4. Inability to feed basic programme expenditures with mounting debt eg Punjab ranked lowest by RBI State Finance Report

5. Central tied grants mania ↳ states unsettled with demands.

6. Rising cases of lack of central devolution in Centrally Sponsord Schemes eg Samagra Shiksha Abhiyan Funds to Tamil Nadu.

7. Fiscal discipline calculus hay meire

However, this is Constitutionally valid:

1. Centre within ambit of Article 293.

2. FRBM Act consideration of fiscal discipline as guide.

3. Need to cut on unconditional welfarism important → social infrastructure focus

4. Introduction of 'competitive federalism' for higher grants.

5. NK Singh Committee recommendation suggestions in line.

Way forward

1. Cooperative fiscal federalism to ensure state finance health.

2. Innovative PPP models for financing and operation eg EPL model.

3. Austerity measures and

4. Public Finance Management System introduction (2nd ARC).