NITI Aayog can play an important role in rejuvenating the fiscal federalism of India. Comment.

Published: June 23, 2019

Ever since the Indian Constitution came into being, India has been on a continuously evolving mode facing its share of both the horizontal and vertical imbalances. Vertical imbalance results when the structure of the tax system in the country yields better tax returns to the Central Government over the State governments. Ironically greater responsibilities are bestowed on the State government. The horizontal imbalances result when the State attain different levels of growth due to differences in the development status in social and infrastructural capital. Latter is further divided into two types: Type I deals with the necessary provision of basic goods and services while Type II arises due to a transformational deficit in the capital. These two imbalances can be removed by two different policy goals which follow the Tinbergen Assignment Principle. NITI Aayog needs to step in here and take on the role of a second fiscal federal structure. NITI Aayog has been rendered toothless when compared to the erstwhile Planning Commission which had access to resources and gave grants under the Gadgil-Mukherjee formula. Thus, it is not well-equipped for taking on a transformational intervention. In order to carry out the task of Cooperative Federalism, the NITI Aayog needs to have access to requisite resources to be able to spur in backward States. The efficacy and utilisation of these grants should be carried out by an independent office under the aegis of NITI Aayog.

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