Topic: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein
4. Discuss the decreasing financial capacity of the Indian states; the causative factors and its consequences in the current times. Comment with respect to the issue of fiscal federalism in India. (250 words)
Reference: The Hindu
Why the question:
The article discusses the decreasing financial capacity of the states; the causative factors and its consequences.
Key Demand of the question:
Discuss the issues and challenges facing the fiscal federalism in the country.
Directive:
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Comment– here we have to express our knowledge and understanding of the issue and form an overall opinion thereupon.
Structure of the answer:
Introduction:
Firstly explain what fiscal federalism is, and brief upon the challenges that the Indian states are facing currently.
Body:
Comment upon the decreasing financial capacity of the states; declining actual devolution, shrinking divisible pool, GST shortfall, unavailability/shortfall in central grants etc.
Discuss the consequences of the above said factors on the financial capacity of the States. Due to the combined effect of cutbacks in devolution, the shrinking divisible pool, failure to pay full GST compensation this year and fall in Central grants, the States may experience a fall of 20%-25% in their revenues for the current fiscal year.
Explain both short term and long term impact.
Conclusion:
Conclude that States are at the forefront of development and growth. Strong states lead to a stronger India. Given that the weakening of states serves neither federalism nor national interest, there is the need to guard against any such policies that weaken the states’ status or capabilities.
