Topic: Constitutional Bodies
Q4. Explain the role of Finance commission in maintaining fiscal federalism. In this context, what are the challenges ahead of newly constituted 16th Finance Commission? (250 words, 15M)
Difficulty level: Moderate
Reference: The Hindu, Insights on India
Why the question:
The sixteenth Finance Commission headed by former Niti Aayog Vice-Chairman Arvind Panagariya has begun its work by inviting suggestions from the public on the mandate set for it by the Centre
Key Demand of the question:
To explain the role of the Finance Commission in maintaining fiscal federalism and discuss the challenges faced by the 16th Finance Commission.
Directive:
Explain – Clarify the role and significance of the Finance Commission, and then identify and discuss the specific challenges.
Structure of the Answer:
Introduction:
Briefly introduce the Finance Commission and its constitutional mandate.
Body:
First part: Role of Finance Commission in Maintaining Fiscal Federalism
Allocation of tax revenue between the Centre and states, the grant-in-aid to state, recommendations on fiscal policies to ensure equitable growth.
Second part: Challenges Ahead for the 16th Finance Commission
Addressing fiscal deficits and debt sustainability, Balancing regional disparities, Managing GST revenue sharing, Adapting to economic changes post-pandemic, Incorporating climate change and sustainable development in fiscal planning, and regulating the overuse of cess and surcharge by the centre.
Conclusion:
Provide the solutions for overcoming the challenges faced by the 16th Finance Commission.
