GS Paper 2 : Centre State relations.- Challenges to Federalism
Qn. Discuss the recent challenges to the states in sharing of revenues collected by the Centre. Do you think that the Constitution places the states at a disadvantageous position financially compared to the Union Government ? (250 words)
Why this Question ?
The question has been framed in the background of the recent incidents in which the relationship between the Centre and the States has become a serious issue on the fiscal front.
There are two parts to the question.
The first part is about the recent challenges to states in sharing the revenues.
The second part is about our opinion on how the constitution treats the state and the central governments on financial matters.
Since both the issues are clearly related, a common introduction that touches upon both parts of the question can be given.
The introduction can bring out the idea that the makers of the constitution had foreseen the dominance of the centre on the states on the issue of revenue sharing. That is the reason that a Constitutional provision in the form of Art 270 has been kept in the constitution for the purpose of dividing the total revenues collected and to share it between the centre and the states. Various new taxes have been brought under this ambit of divisible pool by successive amendments and most of the taxes collected by the Centre forms a part of the divisible pool of resources that has to shared with the states. Art 280 also makes it incumbent upon the President to constitute a Finance Commission for the sharing of revenues between the Centre and the States. Inspite of these provisions various challenges have come in the recent days between the centre and the states on matters related to sharing of revenues and finances.
Such an introduction incorporates both the parts of the question so that a connect is visible between both the parts of the question in the introduction.
1.Issue of GST payments ( Delayed release of GST compensation due to states like Tamilnadu )
2.Centre directing the states to borrow from RBI.
3.Increasing share of cess (15% of Gross revenue collected at present) – cess does not constitute a part of divisible
4.Recommendations of Finance Commissions are not always followed and hence lesser devolution that what has been suggested. (In the last 14th FC period states got 7,97,000 crores less than what has been recommended by the 14th FC)
These issues should be elaborated so that the content of the answer is appropriately written. These 4 points can illustrate to the examiner that there are such challenges to fiscal federalism in India.
The answer can be concluded by mentioning that inspite of the Constitutional safeguards to protect the interest of the states, these challenges that have crept in have caused friction in the relationship between the Centre and the states. It is the responsibility of the Centre being the stronger partner in our quasi- federal system to ensure that the states are rightly compensated. This has to be done keeping in mind that most of the welfare and development activities falls within the domain of the state governments and hence the states are in dire need of resources to overcome the present crisis.