GS2 · 10 marks · 150 words

The shrinking effective share of States in the Union's gross tax revenues, coupled with equity-heavy criteria in horizontal devolution, raises critical concerns for fiscal federalism in India. Analyse.

Answered by 3 toppers · CSE 2023–2025

Centre-State RelationsFederalism

Syllabus: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

How toppers approached it

From all 3 answers · about 140 words · 67% drew a diagram.

Opening

  • No separate opening2 of 3
  • A figure1 of 3

Body

  • Points3 of 3

Close

  • A way forward3 of 3

The toppers’ answers

Pakshal SecretryAIR 8 · CSE 2025 · 143 wordsTheir whole copy

Opening · no separate opening

None written.

Body · points

• Recently many state demanded revision in criteria for fiscal federalism in consultation with 16th Finance Commission

Critical Concern

  1. gap in recommended vs actual devolution
  2. Rise in collection of cess & surcharge (non sharable with state)
  3. Centrally sponsored scheme → State need to contribute
  4. Tied funds from centre
  5. Withholding of funds [eg. Bengal MGNREGA Case]
Diagram
* Fiscal Devolution * Bar chart showing two bars: * Mandated: 41% * Actual: 32% * Gap indicated between them labeled 'I gap' * Y-axis: Unlabeled (representing percentage) * X-axis: Mandated, Actual

  1. Horizontal inequity → TN recieve only 27 paise back for 1Rs it contribute vs Bihar → recieves 7 Rs for every 1 Rs.

  2. Too much wrightage to income distance and population

  3. Punishing of productive states → TN, Kerala

Way forward

  1. Rangarajan C. (14th FC Head)

    (i) formula & flexible devolution

    (ii) Including cess in sharable pool

    (iii) Recognise efforts of southern state in population Reduction

Close · a way forward

Thus, the devolution must be based on principle of vertical Equity & Horizontal Equity.

More on Centre-State Relations

Legislative, administrative and financial relations, and disputes between them.

All GS2 questions on Centre-State Relations