Central transfers — arresting the decline in shares of some States

Syllabus: GS- II, Subject: Polity, Topic: Federalism, Issue: Fiscal Federalism

Context: Southern Indian states worry about getting less money from successive Finance Commissions devolutions.

Reason for decline:

  • The income distance criterion, which assigns higher shares to states farther from the highest income state,
  • The shift from using 1971 population data to 2011 data by the Fifteenth Finance Commission

The way ahead:

  • Consider reducing the weight of the income distance criterion
  • Limit cesses and surcharges to 10% of the Centre’s gross tax revenues to prevent reduction in the size of the divisible pool.
+1 Advantage for Mains (Data Point):

·          Southern states experienced a loss of more than 8% points due to the distance criterion between the Thirteenth and Fifteenth Finance Commissions.

 

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