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The pandemic’s economic havoc has thrown up multiple challenges to fiscal federalism in India. Discuss. Provide measures to overcome the same.

Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

4. The pandemic’s economic havoc has thrown up multiple challenges to fiscal federalism in India. Discuss. Provide measures to overcome the same. (250 words)

Reference: The Hindu , The Hindu

Why this question:

With GST collections set to shrink, the Centre must find new ways to compensate States.

Key demand of the question:

The answer must discuss how the contraction in the economy due to the reduced tax inflows as a consequence of halted economic activities. How this is affecting the fiscal federalism in India and what measures can be undertaken to overcome these challenges.

Structure of the answer:

Introduction:

Begin with what you understand by Fiscal federalism.

Body:

Discuss the following:

Discuss trends in reduced GST collections, the issues in sharing taxes and distribution of grants, the vertical fiscal imbalances, the impact of FRBM legislations, Fifteenth Finance Commission and empowering local governments (LGs), in the context of Centre–state relations.

Discuss the specific challenges.

Provide with measures to strengthen the same.

Conclusion:

Conclude with a balanced way forward.