30/12/2019 - Indian Polity

IAS Parliament 5 years

KEY POINTS

· The 14th Finance Commission (FC) recommended a substantially higher share of the tax revenues for the states, with a clear objective to strengthen their autonomy.

· Over the years, states have come to function more as agents of the Union than as autonomous units.

· Jammu and Kashmir, a full-fledged state, was split into two union territories at the time when there was Governor’s rule and the state assembly was in suspension.

· This was done without ascertaining the views of the State Legislature in contravention of Article 3 of the Constitution.

· The 14th FC hiked the states’ share in the Centre’s tax revenues by 10 ppt at one go—from the 13th FC’s 32% recommendation to 42%—to promote states’ autonomy in resource allocation.

· But, the Centre mobilised revenues by levying cesses and surcharges, not included in the divisible pool. Hence, shrinking the divisible pool of resources available for transfers to states.

· The CAG, in its reports, has highlighted the issue of underutilisation of the proceeds from cesses. It has also pointed out that the monies raised for specific purposes through some of the cesses have been diverted for other purposes by the Centre.

· The recent implementation of the Goods and Services Tax (GST) can be cited as a remarkable act of cooperation between the states and the Union.

· Yet, the recent drastic cut in corporate tax, with its adverse impact on the divisible pool, and not releasing GST compensation to states falling short of the stipulated growth on time, as agreed upon, would deter the promotion of cooperative federalism.