Topic: Indian Economy and mobilization of resources.
Q5. Discuss the impact of cess and surcharges on the revenue-sharing mechanism between the Centre and States. (10 M)
Difficulty Level:Easy
Reference: IE
Why the question:
The rising use of cesses and surcharges by the Union government impacts fiscal transfers to states, raising concerns about federalism.Key Demand of the question:
Assess how cesses and surcharges reduce the divisible pool, affecting revenue-sharing and Centre-State fiscal relations.Structure of the Answer:
Introduction:
Define cesses and surcharges and briefly explain their role in revenue generation.
Body:
- Effect on the divisible pool: Explain how cess and surcharge bypass the divisible pool and lead to reduced fiscal transfers.
- Impact on fiscal federalism: Highlight the imbalance created in Centre-State financial relations and its strain on cooperative federalism.
- Role of Finance Commissions: Discuss recommendations of various commissions and how cess practices dilute these recommendations.
- Recent examples: Use CAG findings or instances of state-level concerns (e.g., Karnataka).
Conclusion:
Suggest reforms or solutions to address the imbalance, ensuring a more equitable revenue-sharing mechanism.
