Fiscal federalism in india pdf. Fiscal Federalism in India: Theory and Practice 2019-01-15

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(PDF) Fiscal Federalism in India: An Analysis of Fiscal Transfers to States

fiscal federalism in india pdf

The abuse of the power under Article 356 by the Central Government is replete in the political history of the country. Efficiency refers to the process of gaining more outputs for a given quantity of inputs. Consequently, a salient characteristic of federal government is legislative autonomy with financial dependence. The states were to raise the other 50 per cent as counterpart funds, through loans from sector-specific sources like Power Finance Corporation or any other source of their own, including market borrowing. It must also be noted that even as institutional reforms required for achieving the desired characteristics including the hard budget constraint continue, it may achieve tangible results only in the short-and-mediumterm.

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(PDF) Fiscal Federalism in India: An Analysis of Fiscal Transfers to States

fiscal federalism in india pdf

First, the incentives should be sufficiently sizeable and effective to make the parties comply with the conditions. These may not be taken into account fully while designing the transfers and may thus have unintended effects. This paper assesses the potential usefulness of fiscal policy rules for India, in the light of rapidly growing international experience in this area. These developments help to identify some important features of efficient fiscal federalism which are summarised in the following. In other words, it is important to undertake reforms to ensure hard budget constraints at the state level. Such acts are in vogue to put down separatist movements in certain parts of the country. The important long term reform of governance and developmental policies undertaken in Gujarat and more recently Bihar, have been politically rewarding as well.

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Practice of fiscal federalism in India

fiscal federalism in india pdf

Accommodation was applied to the principles to be embodied in the Constitution. However, considering the nature and scope of administration in India, such services are essential as they impart all India character to governance. The State Legislature, on the other hand, can impose sales tax on the sale or purchase of goods other than the newspapers, except where such a sale takes place in the course of interstate trade and commerce. The long term reform in this area should essentially do away with the distinction between the sources of income. Bird and Gendron 2007, p.


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Fiscal Federalism in india

fiscal federalism in india pdf

It is important to discourage protectionist policies at sub-national levels. Provincial budgets were separated from the budget of the Government of India. It is a compromise between two conflicting considerations such as autonomy enjoyed by states within the constitutionally prescribed limit State List and the need for a strong centre in view of the unity and integrity and sovereignty of the country. Rationalisation of the transfer system and restoration of fiscal balance in the states will not be possible without a radical review of the practice of planning, plan financing and central assistance for state plans. The Ministry of Finance, Government of India, was the agency implementing the scheme and a Monitoring Committee was also set up with official and non-official members to oversee the implementation of the scheme. A special education cess was levied on income tax to defray the cost of this programme.

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Fiscal Federalism in india

fiscal federalism in india pdf

Around this time fiscal discipline began to be focused resulting in the marked improvement in all the fiscal parameters. This paper deals with the problems encountered in defining and meas-uring the degree of fiscal decentralisation. So the present comfortable fiscal situation of the State has been obtained through debt relief measures and the greater financial devolution. Your consent to our cookies if you continue to use this website. They provide valuable lessons for improving the design and implementation mechanisms.

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Fiscal Federalism in India: Theory and Practice

fiscal federalism in india pdf

This requires ratification by the Legislatures of not less than one half of the States. But the religious process need not be always divisive. We bring out asymmetric arrangements arising from constitutional arrangements or conventions evolved over the years. This paper provides a review of the recent reform and offers some tentative answers to the issues still open, relying on a series of simulations and projections. How can the conditions be enforced on the central government? Transferred subjects were to be administrated by the Governor with the aid of Ministers responsible to the Legislative Council in which the proportion of elected members was 70 percent. Source: GoI Act, 1919 Box 3. Last but not the least, the indestructibility of the Union and destructibility of the units by the Union substantiate the given view.

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Federalism and Fiscal Reform in India

fiscal federalism in india pdf

The paper underlines the need to have an effective institutional arrangement for intergovernmental bargaining and conflict resolution. Given 25 that the Council will be appointed by the Finance Ministry and will report to it, how independent will the review be and how effective will the monitoring process be? Its approach was that the principles of tax sharing should be uniformly applied and if, as a result, some states have larger deficits, these should be covered by explicit grants under Article 275, rather than being disguised as shares of taxes. Substantiate your answer with recent examples. As a result, it has not been possible to levy income tax on a comprehensive concept of income and this has opened up an important avenue for evasion and avoidance of the tax. Is effected by the transfer of documents of title after the goods have crossed the customs of India. During national and state emergencies the Union Government assumes undisputed power over the whole or any part s of India.

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Fiscal Federalism in India: Theory and Practice

fiscal federalism in india pdf

Problem gets compounded by the fact that since monetary initiatives are with the Centre it can - in fact it does - use them to counter balance any fiscal profligacy committed on account of political expediency fiscal measures are politically more sensitive. Specific recommendations on the medium-term growth of salaries and wages and interest payments, as well as reduction in explicit subsidies were also made. It presents briefly the main decentralisation instruments available—allocation of functions and revenues across the levels of government, development of intergovernmental transfers, institution of central monitoring and control mechanisms and the institution of electoral rules. Decentralisation is a complex and often somewhat elusive phenomenon. This chapter examines the interrelationship between fiscal reforms, fiscal rules and development spending. Further, because of the counterpart funding requirement, relatively poor states have not been able to take advantage of the programme to the full; their high levels of indebtedness make them wary of further debt. However, there has not been a systematic analysis of the issues involved in any other aspect of the Constitution to the extent there has been on financial relation due to periodic 71 constitution of Finance Commissions in India.

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Federalism and Fiscal Reform in India

fiscal federalism in india pdf

At the state level too, the implementation of pay revision has resulted in both revenue and fiscal deficits exceeding the limits placed by the fiscal responsibility legislations. However, sub-national governments may not consider the overall interest of the economy while exercising their tax powers and this may result in significant inefficiencies. This has resulted in cementing of centralized forces and disaffection of constituent states towards the federal character of the Indian Polity. In so far as tax effort is concerned, measurement of tax effort on a comparable basis among the states is not a straightforward exercise, because tax effort must be related to some notion of tax potential and the composition of tax base among the states. The First Commission laid down two principles that had by and large, been followed by succeeding Commissions that: 1 at the time of distribution of revenues between the states, the determination of grants-in-aid for them must be based on principles that are uniformly applied to all states; and 2 the scheme of distribution should attempt to lessen the inequalities between the States.

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Practice of fiscal federalism in India

fiscal federalism in india pdf

The paper identifies the merging challenges in achieving fiscal decentralization in the two countries. It is of interest to note that higher education; forests and population control were all added to this list in 1977 during the emergency when it was felt that the states were not doing justice to these subjects of national importance. It has also been realized that the pursuit of fiscal consolidation, mainly through expenditure reduction, has its snares, since government expenditure on consumption and investment constitute an important part of aggregate demand in the economy with its impact on the economic growth prospects. For the successful operation of the federal form of government financial independence and adequacy form the backbone. Como resultado observou-se que a maior ou menor centralização é resultado de uma série de fatores que passam do processo de formação do Estado às tensões internas geradas pela própria dinâmica política, econômica e social do país. Many countries are decentralizing in various ways. The Twelfth Finance Commission finally recommended that the practice of central government lending plan assistance to the states should be given up and the loan part of the assistance should be accessed from the market.


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