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The Hindu Editorial

7-February-2024

1. Union government’s reins on financial transfers to States.

Topic: GS2 – Indian Polity – Constitutional Bodies
GS2 Functions & responsibilities of the Union & the States – Devolution of powers and finances Critical for UPSC as it addresses fiscal federalism challenges, centralization impact, and cooperative federalism principles in Indian governance and economics.
Context
  • The article discusses the reduction in financial transfers to Indian states by the Union government since the Fourteenth Finance Commission.
  • It highlights the impact on state shares in tax revenue, increased cess and surcharge collections, and the centralization of public expenditure, potentially leading to inter-state inequality.
 Reduction in Financial Transfers to States Since Fourteenth Finance Commission (2015-16):
  • The Fourteenth Finance Commission recommended devolving 42% of Union tax revenues to States, a 10 percentage point increase from the 13th Finance Commission’s recommendation.
  • However, the Union government has been reducing financial transfers to States since then, impacting the distribution of financial resources.
Basic Math on Tax Revenue:
  • The gross tax revenue of the Union government more than doubled from ₹14.6 lakh crore in 2015-16 to ₹33.6 lakh crore in 2023-24.
  • States’ share in Union tax revenue increased from ₹5.1 lakh crore to ₹10.2 lakh crore between these two years.
  • Grants-in-aid to States declined from ₹1.95 lakh crore in 2015-16 to ₹1.65 lakh crore in 2023-24.
  • The combined share of statutory financial transfers in the gross tax revenue declined from 48.2% to 35.32%.
Increase in Cess and Surcharges:
  • Revenue collection through cess and surcharge increased from 5.9% (₹85,638 crore) in 2015-16 to 10.8% (₹3.63 lakh crore) in 2023-24.
  • The Union government increases tax collection under cess and surcharge categories for its specific schemes, without sharing revenues with the States.
More Centralization of Public Expenditure:
  • Decline in financial transfers to States results in larger discretionary funds for the Union government’s own expenditures.
  • Centrally Sponsored Schemes (CSS) and Central Sector Schemes (CSec Schemes) are used for direct financial transfers to States.
  • CSS allocation increased from ₹2.04 lakh crore to ₹4.76 lakh crore (2015-16 to 2023-24), influencing State priorities.
Inter-State Inequality in Public Finances:
  • CSS shared schemes allow wealthy States to leverage Union finances, while less wealthy States must commit borrowed finances, increasing their liabilities.
  • CSec Schemes, fully funded by the Union government, increased from ₹5.21 lakh crore to ₹14.68 lakh crore in 2023-24.
Scope for Anti-Federal Fiscal Policies:
  • Financial transfers through CSS and CSec Schemes are non-statutory and not based on legal provisions or Finance Commission formulas.
  • Non-statutory grants, forming 12.6% of gross tax revenue, restrict States’ freedom in public expenditure.
  • Union government retains over 50% of gross tax revenue, incurring a fiscal deficit of 5.9% of GDP, giving it significant financial power with limited expenditure responsibilities.
Potential for Downward Revision in States’ Share:
  • The Fifteenth Finance Commission noted the Union government’s argument for a downward revision of States’ share in Union tax revenue from 42% to 41%, citing higher expenditure commitments.
  • The Union government may repeat this argument before the Sixteenth Finance Commission, raising concerns about cooperative federalism.
Conclusion:
  • In conclusion, the Union government’s deviation from Finance Commission recommendations, coupled with increased cess and surcharge collections, raises concerns about the centralization of financial resources.
  • This shift may exacerbate inter-state inequalities, limit states’ fiscal autonomy, and challenge the principles of cooperative federalism in India’s fiscal policies.
Fiscal Federalism
 Introduction:
  • Fiscal federalism refers to the distribution of financial responsibilities and resources between the central and state governments in a federal system.
Key Features:
  • India follows a federal structure with a three-tier system consisting of the central government, state governments, and local bodies.
  • The Constitution delineates taxing powers through the Seventh Schedule, defining subjects for taxation at the central and state levels.
Challenges:
  • Vertical fiscal imbalance: The central government often has a more significant revenue share, leading to an uneven distribution of resources.
  • Horizontal fiscal imbalance: Economic disparities among states create challenges in resource allocation.
Reforms and Solutions:
  • The introduction of Goods and Services Tax (GST) aimed to streamline and harmonize indirect taxes across states.
  • Finance Commission recommendations play a crucial role in addressing fiscal disparities among states.
Recent Developments:
  • The 15th Finance Commission’s recommendations emphasize the need for a balanced approach to address fiscal challenges.
Conclusion:
  • Achieving fiscal federalism in India requires ongoing dialogue and collaborative efforts between the center and states to ensure equitable development.
PYQ: How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (150 words/10m) (UPSC CSE (M) GS-2 2021)
Practice Question:  Discuss the implications of the Union government’s deviation from Finance Commission recommendations on fiscal federalism and cooperative federalism in India. (150 words/10 m)

2. Manipulation of Chandigarh mayor poll has grave implications for democracy

Topic: GS2 – Indian Polity – Elections
Critical understanding of electoral challenges ensures aspirants grasp the complexities of Indian democracy for comprehensive preparation of UPSC.
Context
  • Supreme Court criticizes Chandigarh Mayor election, suspects manipulation, orders scrutiny, and postpones meeting.
  • The Supreme Court mentioned, such incidence have grave implications for healthy democracy.
 Additional information on this news:
  • The Supreme Court of India criticized the election process of the Mayor of Chandigarh, suspecting manipulation in favor of BJP candidate Manoj Sonkar.
  • Chief Justice expressed dismay over footage showing the presiding officer defacing ballots, calling it a “mockery of democracy.”
  • The election, initially scheduled for January 18, was postponed to February 6, allegedly due to an ill BJP functionary, but later advanced to January 30 by court order.
Issues with Electioneering in India
Issues:
  • Money Power: Excessive spending, vote buying, opaque funding → Unfair advantage, low voter turnout, corruption.
  • Criminalization: Candidates with criminal records → Erodes rule of law, weakens institutions, public distrust.
  • Communalism & Casteism: Appeals based on religion or caste → Social disharmony, undermines meritocracy, polarization.
  • Paid News & Misinformation: Fake news, media bias → Misinformed voters, weakens democracy, erodes trust.
Implications:
  • Unequal playing field: Hampers fair democratic representation, hinders good governance.
  • Erosion of democratic values: Weakens institutions, reduces public trust, fuels social conflicts.
  • Ineffective policies: Focus shifts from substantive issues to divisive tactics, hindering development.
  • Voter apathy: Disillusionment with candidates and processes leads to low participation.
Way Forward:
  • Stricter election financing: Spending limits, transparent funding sources, strong enforcement.
  • Electoral reforms: Barring candidates with criminal records, promoting clean campaigns.
  • Media accountability: Fact-checking initiatives, combating misinformation, ethical journalism.
  • Voter education: Empowering citizens with critical thinking skills, promoting informed voting.
  • Strengthening institutions: Independent Election Commission, empowering law enforcement agencies.
PYQ: Discuss the role of the election Commission of India in the light of the Evolution of the Model Code of Conduct. (UPSC CSE (M) GS-2 2022) (150 words/10 m)
Practice Question:  Critically examine the challenges in Indian electioneering. Analyze their implications for democracy and suggest concrete measures for a level playing field and ethical electoral practices. (250 words/15 m)

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