Evolving Contours of Centre-State Fiscal Relations: Inconsistencies, Ad-Hocism and Centralization

D.K. Srivastava ()
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D.K. Srivastava: (Corresponding Author)Chief Policy Advisor, EY India and formerly Director, Madras School of Economics

Working Papers from Madras School of Economics,Chennai,India

Abstract: This paper highlights features of growing inconsistencies, ad hocism and centralization in the working of intergovernmental fiscal relations in India in recent years. To illustrate these issues, relevant examples are drawn from the 2018 amendment of Centre’s FRBM Act, determination of the inter-se distribution of the divisible pool of taxes amongst the states, and the working of the GST Council. Methods are also suggested as to how reforms can be introduced in order to reverse these undesirable features. In the case of Centre’s FRBMA, we suggest alternative but internally consistent combinations of debt and fiscal deficit relative to GDP. In the context of fiscal transfers, we recommend the incorporation of relevant information reflecting cost and need disabilities directly into the broad-based devolution criteria. In the case of GST, we recommend inclusion of important excluded items such as taxation of petroleum and alcoholic beverages while giving additional revenue autonomy to states by the introduction of a non-rebatable cess on polluting and demerit goods and services.

Keywords: FRBMA; GST; fiscal transfers; Finance Commission; equalization; centralization (search for similar items in EconPapers)
JEL-codes: E61 H10 H21 H77 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-03
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