‘Renewed Centre-State dialogue needed to strengthen India’s fiscal federalism’
GS3Economy · S&T · Environment · Security· Fiscal policy, budget & taxation (GST)· Mains·
Why in news
Former RBI Governor D. Subba Rao and Montek Singh Ahluwalia called for a renewed Centre-State dialogue to address the growing fiscal divide and improve transparency in fiscal federalism.
Background
The conference highlighted issues including unchanged Terms of Reference, lack of transparency in cesses and surcharges, and high dependency on the GDP metric. Telangana Chief Secretary K. Ramakrishna Rao advocated for increased local resource mobilization to reduce dependence on Union transfers.
Facts for Prelims
- FactAjay Narayan Jha is a member of the 15th Finance Commission
- FactCesses and surcharges were identified as areas lacking transparency in the fiscal framework
- FactThe conference identified high dependency on the GDP metric as a concern for fiscal federalism
For Mains
Q. Discuss the structural challenges facing India's fiscal federalism, specifically regarding the transparency of cesses and the fiscal autonomy of states.
Dimensions to cover in your answer
- Fiscal asymmetry: Difficulty in addressing structurally deficit states while ensuring equitable capacity-based resource distribution
- Transparency deficit: Lack of clarity in cesses and surcharges affecting the predictable flow of funds to states
- Revenue autonomy: Underutilized state taxing powers leading to high dependency on Union transfers
Keywords: Fiscal Federalism · Vertical Imbalance · Cesses and Surcharges · Resource Mobilization · Structural Deficit
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