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Federal Fiscal Relations in India

Federal Fiscal Relations in India
Imperatives for Restructuring

  • J V M Sarma - former Professor, School of Economics, University of Hyderabad.

March 2020 | 256 pages | SAGE India
Federal fiscal management involves the sharing and distribution of financial and economic powers among different layers of government, and restructuring of public finances, among others. Countries such as India, that adopted the federal form of government, have guidelines in their Constitutions for such division of economic and financial powers. Even with all such institutional arrangements, the federal fiscal management is not without snags and hitches.

Countries vary in their choice of federal system, welfare objectives, approaches to ensure balanced regional development and equity in economic growth, and the overall economic management approach. India with its diverse social, economic and cultural background is an ideal case of adopting the federal form of government. This fact was well-recognized even before Independence and so a system of federal fiscal sharing – sharing of revenues between various layers of government, using transfer processes referred to as inter-governmental transfers – had been put in place. Yet even after six decades the system remains thorny. To correct the imbalances, the tax system is under extensive revision and many other changes in the state level tax systems are planned. Further, the economic planning process is under complete revision with the replacement of the Planning Commission by the National Institution for Transforming India (NITI) Aayog that might lead to further fundamental changes. All this might alter the revenue shares of the central, state and local governments, which calls for complete revamping of the federal fiscal arrangements for inter-governmental transfers in India.

This book aims to analyze the federal fiscal sharing system for India and recommend suitable reforms, taking into account the impending changes in the structure of the economy and the potential for revenue generation at different levels of government.

Federal Form of Governance
Federal Fiscal System: Broad Requirements
The Indian Federal Fiscal System
Major Issues of the Federal Fiscal Transfer System
Guidelines for Restructuring
Scientific and Rational Methods for Vertical and Horizontal Sharing
Conclusions and Recommendations
Appendix A: Fiscal Federal Management— Country Experiences
Appendix B: Evolution of the Federal Fiscal Relations in India
Appendix C: Vertical Fiscal Imbalance
Appendix D: Measurement of HFI— An Illustration of the NMBF Method
Appendix E: Criteria Used for Horizontal Tax Sharing in India by Successive Finance Commissions

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ISBN: 9789353882693
ISBN: 9789353882662