Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?
The financial relationship between the Centre and States in India has been a dynamic one, shaped significantly by the model of planned development.
Evolution during the Planning Era:
For decades, the Planning Commission, an extra-constitutional body, dominated fiscal federalism. It controlled the flow of funds to states for planned expenditure through discretionary grants and centrally sponsored schemes. This created a centralized, top-down approach, often criticized for eroding the financial autonomy of states and making them heavily dependent on the Centre's discretion. This model fostered a dependency culture rather than a cooperative partnership.
Impact of Recent Reforms:
The landscape of fiscal federalism has been significantly altered by recent reforms:
- Abolition of the Planning Commission: Replacing it with NITI Aayog in 2015 ended the 'plan' and 'non-plan' expenditure distinction, shifting greater financial autonomy to the states.
- Higher Tax Devolution: The 14th Finance Commission's recommendation to increase the states' share in the divisible pool of taxes from 32% to 42% was a landmark step towards empowering states financially.
- Introduction of GST: The Goods and Services Tax (GST) has transformed the fiscal framework. The GST Council, where both Centre and states have a say, institutionalizes cooperative federalism. However, it is also criticized for impinging upon states' fiscal autonomy and creating dependency on compensation.
While these reforms have formally promoted cooperative federalism, concerns remain. The increasing use of cesses and surcharges by the Centre (not part of the divisible pool) suggests the tussle for fiscal space continues.
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