23/10/2019 The Hindu Editorials Notes- Mains Sure Shot
Question – What is meant by fiscal federalism? Why is it significant for a country like India?(250 words)
Context – The suggestion to establish an Expenditure Council.
Why in news?
- There is an apprehension that the Central government is trying to limit the expenditure power of the states.
What is meant by fiscal federalism?
- To simply understand, it is the federal relations between the Centre and the states in financial matters.
- It implies that Centre should not try to encroach upon the financial matters of the state in terms of collection or spending of its revenue.
Fiscal federalism in India:
- The main sources of revenue for any state is taxes both direct and indirect.
- In India the state governments do not have the power to levy direct taxes. They can only collect indirect taxes.
- They have the autonomy to spend the taxes they collected in their own way.
- This is justified by the fact that the state has a democratically elected government and it is the right of the people of the state, through their representatives, to decide how to spend the money that it available to them.
- Because the primary responsibility of such an elected government is efficient governance and accountability to its voters.
- But with the GST in place some were apprehensive that the Centre has tried to limit even in the power of indirect tax collection of the states. Though with the GST Council in place where the states have representatives, the principle of cooperative federalism was retained.
- Now the centre has proposed that there should be a permanent expenditure fund created for defence funding out of the total tax revenue pool that it receives.
- Now it is important to note that under GST the Centre keeps a certain amount of the entire tax collected and distributes the rest among states. At present the Centre keeps 52% of the total tax revenue pool (The tax pool is a record that the trustees need to keep to show, at the end of a given tax year, the difference between the: total Income Tax entering the tax pool that year, plus the amount carried over in the tax pool from earlier years) and distributes 48% to all the states and Union Territories.
- But the Centre now instead of spending out of its 52% share that it has on defence, wants the states to bear this. This will further reduce the share of money received by the states for their own expenditure.
- This will significantly reduce the overall tax revenue pool of the states.
- So with GST a certain part of revenue collection power of the state went to the Centre and now the Prime Minister’s Economic Council has advised to constitute an Expenditure Council, similar to the GST Council, this will dilute the expenditure autonomy (i.e. their spending power) of the states as well.
- Thus it is argued that an elected Chief Minister of a state with no discretionary powers to earn or spend for the people of the state can virtually hand over the reigns of governance to the Centre.
- So it can be seen as impacting the financial autonomy of the states or in other words, fiscal federalism.
Is this desired?
- India is a diverse country not only in terms of culture but also economically with different states on different levels of economic development. So it will be a mistake to think that all the states can be governed by one Central authority. Autonomy of the state governments is required and for this real autonomy, real financial autonomy is a must.
- Further any measure to dilute the fiscal federalism of the states can lead to more tensions between the Centre and the states and the ultimate bearer of this will be the stalling of the development process.
- So a balance is required.
So what can be done?/ Way ahead:
- One tangible solution to restore this balance is to grant the state governments the powers to levy income tax (at present they can collect on indirect tax and the only direct tax that they can levy is agricultural tax and that is too less).
- Most of the large federal States across the world like in the United States, state governments and even local governments have the right to levy income taxes on the citizens which are very small.
- In India the democratically elected state governments can be given the power to raise revenues and incur expenditure in accordance with each state’s needs and priorities. It is not wise to give all powers of revenue and expenditure to a Central government.
- The states need to be in a unity under the umbrella of Centre but must be given the space to retain autonomy.
Note: The article titled ‘Recording Crimes’ does not sufficient content but there are some important figures that can be noted.
What is the article about?
- The article is about the Crime in India Report for the year 2017 that was released by the National Crimes Record Bureau (NCRB) recently.
- These are the important figures:
- The total number of crimes committed against women country wide increased by 6% since 2016, while those against scheduled castes went up by 13%.
- There is also a difference between the crimes committed in states and the crimes that are actually reported. Though this figure has improved but still there is a long way to go. This is visible especially in rape cases, where the UT of Delhi registered a rate of 12.5 per one lakh population, which was surpassed by Madhya Pradesh (14.7%) and Chattishgarh (14.6%). But the filing of rape cases in Delhi have significantly increased since 2012 and perhaps this can explain the high rate of such cases.
- The fact that Delhi recorded 40.4% of the total IPC crimes registered among metropolitan cities in 2017 is also likely due to the use of easier (i.e. online) means to register them.
- Finally the report shows that the States in the northeast and others in the rest of the country with significant tribal population like Jharkhand, Chhattisgarh and Orissa have relatively higher murder rates compared to the rest of the country.