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Evolving Contours of Centre-State Fiscal Relations: Inconsistencies, Ad-Hocism and Centralization

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  • D.K. Srivastava

    ((Corresponding Author)Chief Policy Advisor, EY India and formerly Director, Madras School of Economics)

Abstract

This paper highlights features of growing inconsistencies, ad hocism and centralization in the working of intergovernmental fiscal relations in India in recent years. To illustrate these issues, relevant examples are drawn from the 2018 amendment of Centre’s FRBM Act, determination of the inter-se distribution of the divisible pool of taxes amongst the states, and the working of the GST Council. Methods are also suggested as to how reforms can be introduced in order to reverse these undesirable features. In the case of Centre’s FRBMA, we suggest alternative but internally consistent combinations of debt and fiscal deficit relative to GDP. In the context of fiscal transfers, we recommend the incorporation of relevant information reflecting cost and need disabilities directly into the broad-based devolution criteria. In the case of GST, we recommend inclusion of important excluded items such as taxation of petroleum and alcoholic beverages while giving additional revenue autonomy to states by the introduction of a non-rebatable cess on polluting and demerit goods and services.

Suggested Citation

  • D.K. Srivastava, 2023. "Evolving Contours of Centre-State Fiscal Relations: Inconsistencies, Ad-Hocism and Centralization," Working Papers 2023-239, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2023-239
    as

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    File URL: https://www.mse.ac.in/wp-content/uploads/2023/07/Working-Paper-239.pdf
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    References listed on IDEAS

    as
    1. Rangarajan, C. & Srivastava, D. K., 2011. "Federalism and Fiscal Transfers in India," OUP Catalogue, Oxford University Press, number 9780198070986.
    2. C. Rangarajan & D. K. Srivastava, 2008. "Reforming India’S Fiscal Transfer System: Resolving Vertical And Horizontal Imbalances," Working Papers 2008-031, Madras School of Economics,Chennai,India.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    FRBMA; GST; fiscal transfers; Finance Commission; equalization; centralization;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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