The Union’s reins on financial transfers to States
- There has been a reduction in fiscal transfers from Centre to States since the Fourteenth Finance Commission.
- The Fourteenth Finance Commission recommended devolving 42% of Union tax revenues to States, an increase over the previous recommendation.
- However, the Union government's actions have not aligned with this recommendation.
Analysis of Tax Revenue Milieu
- The Finance Commissions recommended higher shares for States.
- The actual share of gross tax revenue allocated to States has decreased over the years.
- The increasing revenue collection through cess and surcharge has further reduced the share of States in gross tax revenue.
Influence of Centrally Sponsored Schemes (CSS)
- The Union government's allocation for CSS has increased substantially.
- This is influencing State priorities and financial commitments.
- The implementation of CSS creates disparities among States in terms of financial commitments and resource leverage.
Centre Sector Schemes
- Centre Sector Schemes, fully funded by the Union government, play a significant role in resource allocation,
- potentially benefiting specific regions or constituencies.
- Despite significant allocations, only a fraction of funds are devolved to States under CSec Schemes.
Impact of Non-Statutory Grants
- Financial transfers through CSS and CSec Schemes are non-statutory
- This is reducing States' expenditure freedom.
- The Union government retains a significant portion of gross tax revenue, limiting States' fiscal autonomy.
Conclusion
- The Union government's push for downward revisions in States' share in Union tax revenue challenges the principle of cooperative federalism.
- Future Finance Commissions may face similar arguments from the Union government.
- This will potentially undermine cooperative federalism principles.