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Indian Fiscal Federalism at the Cross-roads: Some Reflections

Lekha cHAKRABORTY

Working Papers from National Institute of Public Finance and Policy

Abstract: There is a growing recognition that something "fundamental" is happening in In-dian fiscal federalism ex-post to the institutional changes like the abolition of the Planning Commission; creation of the NITI Aayog; the Constitutional amendment to introduce GST and the establishment of GST Council; and the historic high tax devolution to the States based on the recommendations of the Fourteenth Finance Commission. Recently the pol-icy makers and experts have raised a few issues, which include (i) to make Finance Com-missions "permanent" or (ii) to "abolish" the Finance Commissions by making the tax de-volution share constant through Constitutional Amendment, (iii) the need for an institu-tion to redress spatial inequalities, to fill in the vacuum created by abolishing the Planning Commission, and (iv) arguing the case for Article 282 of the Constitution to be circum-scribed. The debates are also focused on whether there is a need establish a link between GST Council and Finance Commissions and should India devise a mechanism of transfer which is predominantly based on sharing of grants for equalization of services rather than tax sharing. What could be a plausible framework for debt-deficit dynamics keeping intact the fiscal autonomy of States and to ensure "output gap" reduction and public investment at the subnational level, without creating bad equilibrium was also another matter of con-cern. These debates attain significance, especially when for the first time ever a group of States came together to question the Terms of Reference (TOR) of the 15th Finance Com-mission and there is a growing tension in the Centre-State relations in India.

Keywords: Fiscal federalism; Finance Commission; revenue sharing; fiscal equalization; GST; public debt; fiscal rules (search for similar items in EconPapers)
JEL-codes: H77 (search for similar items in EconPapers)
Pages: 18
Date: 2019-04
Note: Working Paper 260, 2019
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