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A number of constraints and challenges both in federal as well fiscal system are part of the problems that must be solved in order to achieve effective fiscal federalism in the country. Critically analyse.

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

3. A number of constraints and challenges both in federal as well fiscal system are part of the problems that must be solved in order to achieve effective fiscal federalism in the country. Critically analyse. (250 words)

Difficulty level: Tough

Reference: The Hindu

Why the question:

Even the increased share of devolution, mooted by the Fourteenth Finance Commission, from 32% to 42%, was subverted by raising non-divisive cess and surcharges that go directly into the Union kitty. This non-divisive pool in the Centre’s gross tax revenues shot up to 15.7% in 2020 from 9.43% in 2012, shrinking the divisible pool of resources for transfers to States.

Key Demand of the question:

To write about the various issues regarding fiscal federalism in India and measures needed to rectify it.

Directive word: 

Critically analyze – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a balanced judgment on the topic.

Structure of the answer:

Introduction: 

Begin by defining fiscal federalism in India.

Body:

First, give a brief about the development of fiscal federalism in India since independence.

Next, write about the various issues with respect to fiscal federalism in India – opacity, GST issues, FRBMA, impact of the pandemic etc.

Next, write about the measures needed to rectify the above.

Conclusion:

Conclude with a way forward.