GS2GS2

Continuation of Finance Commission allocations and economic disparities among states

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Main Body

Used 2011 population census. Also population measures and tax efforts considered in criteria.

However, some factors led to economic disparities among states:

i) Increasing cess and surcharge reducing the divisible pool of taxes

ii) Income distance given high weightage

(iii) States contributing more such as Tamil Nadu, Maharashtra, Karnataka getting less and Bihar, UP - major receiver.

iii) Dependence on the aid - aid curse - despite receiving funds, no effort to maintain fiscal consolidation and growth.

iv) High revenue expenditure leading to fiscal deficit of states. (S) OPS announced in some states.

Finance commission forms important part of fiscal federalism of the country. States must manage their finances to reduce disparities

— Aditya Agarwal

112 words8 paragraphs

Conclusion

Finance commission forms important part of fiscal federalism of the country. States must manage their finances to reduce disparities

19 words

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Topper

Aditya Agarwal

2024

Subject & Paper

GS2GS2

Topic

Finance Commission and Fiscal Federalism

Economic disparities and challenges in Fund allocation

Factors leading to economic disparities among Indian states

Writing Stats

131

Total words

Paragraphs

analytical

Tone

Linked PYQ

Rajesh Kumar, a senior public servant known for honesty and forthrightness, heads the Budget Division in the Finance Ministry, busy organizing budgetary support to states — four going to polls within the financial year. The annual budget allotted Rs. 7,830 crores for the National Housing Scheme (NHS), a centrally sponsored social housing scheme for weaker sections; Rs. 775 crores drawn till June. The Commerce Ministry long pursued a Special Economic Zone in a southern state; after two years of Centre-State discussion the Union Cabinet approved it in August and land acquisition began. Eighteen months ago a leading PSU projected a large natural gas processing plant in a northern state for the regional gas grid (land already with the PSU, essential for national energy security); after three global bidding rounds it went to MNC M/s XYZ Hydrocarbons, first payment due in December. The Finance Ministry was asked for timely additional allocation of Rs. 6,000 crores for these two developmental projects — decided to be re-appropriated entirely from the NHS allocation; the file reached the Budget Department. Rajesh Kumar realizes re-appropriation may inordinately delay the much-publicized NHS, while fund denial would cause SEZ financial loss and national embarrassment over delayed international payment. Seniors convey the politically sensitive situation needs immediate processing; diversion could raise difficult parliamentary questions. Discuss: (1) ethical issues in re-appropriating funds from a welfare project to developmental projects; (2) given proper utilization of public funds, options available to Rajesh Kumar; (3) is resigning a worthy option?

20M2020