- Prelims: Current events of national importance(Federalism, NITI Ayog, off-budget borrowing etc)
- Mains GS Paper II & III: Functions and responsibilities of the union and the states, issues and challenges pertaining to the federal structure etc
- The Cabinet Resolution of 2015 constituting the National Institution for Transforming India (NITI Aayog).
- It has articulated that “India is a diverse country with distinct languages, faiths and cultural ecosystems.
INSIGHTS ON THE ISSUE
- It is system of government where the powers are divided equally between the Centre and its various parts, including provinces and states
- Basic structure of constitution: Federalism is one of the pillars of the Basic Structure of the Constitution.
- R. Bommai vs Union of India case: States are not mere appendages of the Union and the latter should ensure that the powers of the States are not trampled with.
- It is a horizontal relationship between center and state, where they “cooperate” in the larger public interest.
- It enables states’ participation in the formulation and implementation of national policies.
- In Competitive federalism States compete among themselves and also with the Centre for benefits.
- It is not part of the basic structure of the Indian constitution. It is the decision of the executives.
- The endowments of states in the free-market economy, available resource base and their comparative advantages all foster a spirit of competition.
- Articles 245 to 254: The legislative functions of union and states are discussed mainly in article 245 to 255 in Part XI of the constitution.
- Article 246(Seventh Schedule): It demarcates the powers of the Union and the State by classifying their powers into 3 lists. They are:
- Union List
- State List
- Concurrent List.
- The Planning Commission was replaced by NITI Aayog in 2015 with emphasis on ‘Bottom –Up’ approach
- Envisage the vision of Maximum Governance, Minimum Government, echoing the spirit of ‘Cooperative Federalism’.
- To achieve Sustainable Development Goals(SDGs)
- To enhance cooperative federalism by fostering the involvement of State Governments of India in the economic policy-making process using a bottom-up approach.
Functions of NITI Ayog:
Main mandates of NITI Aayog:
- To foster cooperative federalism: through structured support initiatives and mechanisms with the States on a continuous basis.
Recommendations of Finance commission rejected by Union Government:
- The Fifteenth Finance Commission report: It recommended a special grant to three States to ensure that the tax devolution in 2020-21 in absolute terms should not be less than the amount of devolution received by these States in 2019-20.
- This recommendation was not accepted by the Union Government
- Recommendation relating to grants for nutrition: amounting to ₹7,735 crore was not accepted.
- Grants to States recommended by the Finance Commission for the period 2021-26: The sector-specific grants and State-specific grants recommended by the Commission have not been accepted
Impact of rejecting recommendations:
- Cooperative Federalism: It undermines the stature of the institution of the Finance Commission and cooperative federalism.
- It refers to loans taken by state government entities, special purpose vehicles, etc, where principal and interest would be repaid from the state government’s own budget, instead of the cash flows or revenues generated by the borrowing entity.
- Bypass net borrowing ceiling:Such borrowings bypass the net borrowing ceiling fixed for states in a fiscal year
- The responsibility for repayment lies with states: It adversely impacts their revenue and fiscal deficit .
Recent developments around Off-Budget borrowings:
- Off-Budget borrowings: from 2021-22 onwards it will be serviced from the State budgets as States’ borrowings and adjusting them against borrowing limits under Fiscal Responsibility and Budget Management (FRBM) in 2022-23
- It is in accordance with the recommendation of the Finance Commission
What Finance commission recommended?
- Governments at all tiers may observe strict discipline by resisting any further additions to the stock of off-Budget transactions.
- In case of uncertainty:
- The timetable for defining and achieving debt sustainability may be examined by a high-powered intergovernmental group
- FRBM Act may be amended as per the recommendations of this group
What are Off-Budget borrowings used for?
- For meeting revenue expenditure.
- The Comptroller and Auditor General of India (C&AG) Report(on the Compliance of FRBM Act for 2017-18 and 2018-19): It pointed out eight instances of meeting revenue expenditure through Extra Budgetary Resources (EBR).
Cess and surcharge:
Cess: A cess is imposed as an additional tax besides the existing tax (tax on tax).
Surcharge: It is levied on the payable tax and not the overall income.
How cesses and surcharges have been used?
- The share of cesses and surcharges in the gross tax revenue of the Centre increased from 5(thirteen point five)% in 2014-15 to 20% in the Budget estimates for 2022-23.
- States only get a 29.6(twenty nine point six)% share of taxes: because of higher cesses and surcharges.
- Though the States’ share in the Central taxes is 41%,(recommended by the Fifteenth Finance Commission)
- The C&AG in its Audit Report on Union Government Accounts(2018-19): It observed that of the ₹2 lakh 74 crore(approx) collected from 35 cesses in 2018-19, approx ₹1 lakh 64 crore had been credited to the dedicated funds and the rest was retained in the Consolidated Fund of India.
- Different Committees appointed by the Government of India: They have emphasized the need to curtail the number of Centrally Sponsored Schemes (CSS) and restrict them to a few areas of national importance.
- The Sub-Committee of Chief Ministers appointed by NITI Aayog: It has recommended a reduction in the number of schemes and the introduction of optional schemes.
QUESTION FOR PRACTICE
- How far do you think cooperation, competition and confrontation have shaped the nature of federation in India ? Cite some recent examples to validate your answer.(UPSC 2020)
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