Sharing of Revenue and Cooperative Federalism

The Constitution provides for inter-state councils which serve as a platform for consultation as well as serve the foundation for cooperative federalism between centre and states. The 14th Finance commission also recommended a substantially higher share of tax revenue to states to strengthen their autonomy and also recommended the role of inter-state council be reactivated. NITI Aayog which replace planning commission was also formed to promote cooperative federalism. Though the states’ autonomy instead of being enlarged has been curbed by the Centre. Rather than becoming autonomous, states have become agents of the Centre. A few examples can be seen to seen how States are being coerced to accept the Centre’s actions.

Take for example, the full fledged state of Jammu & Kashmir was split into two union territories without ascertaining views of the State legislature, which was in contravention of Article 3 of the constitution.
The fourteen finance commission hiked the states’ share in the Centre’s tax revenues from 32% to 42% to promote autonomy. Though the centre mobilised revenues via levying surcharges and cess which is not included in the visible pool. This has resulted in shrinking of the divisible resources, while seeing a rise in Centre’s ceases and surcharges. Despite the recommendations of the 14th FC, the devolution was 34.26%.

CSS schemes

With the restructuring and rationalising of centrally sponsored schemes in FY16, the burden on resources of the states’ have increased, with them having to spend more. The CSS schemes were restructured into – core of core, core and optional schemes.

While the financing pattern for core of crore of has remained the same, the contribution of states belonging to general category was raised to 40% in case of core schemes and to 50% in case of optional schemes. Around 75% of the total cost of CSS fails under the core schemes in FY20.

Additional Terms of Reference (AToR)

The Central government has asked the 15th FC to examine the setup and operationalisation of a separate mechanism for funding defence and internal security. However these provisions do not fit into the framework under the provision of Article 280 (3) (d) of the constitution. Defence is present in the union list while internal security is responsibility of the state. In any case, the original Terms of Reference incorporate a consideration on demand of resources on account of defence, internal security, infrastructure, railways, climate change and other committed expenditure. The attempt to include AToR could be due to the decline in the defence expenditure from 1.82% of GDP in FY15 to 1.54% in FY19 and the present slowdown in the economy. It could be difficult to meet this low provision in the budget while maintaining the fiscal deficit at 3.3%. Thereby, it is an attempt to nudge the commission to accommodate the Centre with a larger proportion of tax revenue, leaving less in the pool of states.

These examples show that states operational freedom is being curtailed which is not conducive for cooperative federalism.

Question for UPSC Mains:
The restriction on states’ operational freedom to function within their jurisdiction has resulted in lack of a conducive environment to promote cooperate federalism. Elucidate.

Published: January 1, 2020 | Modified:January 1, 2020

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