QUESTION: In bridging the GST gap, the Centre ought to help States through the Consolidated Fund of India. Elaborate






  • Bridging GST Gap



  • The Finance Minister’s statement that the financial crisis facing the States is a result of an “act of God” is symptomatic of abdication of responsibility towards cooperative federalism.


  • The economic slowdown, which has been on for almost three years now, began to impact GST revenue collections in August 2019.
  • As per the Centre’s estimates, the States’ GST revenue gap in 2020-21 will amount to about ₹3 lakh crore, while cess collections are only projected to reach ₹65,000 crore, leaving a shortfall of ₹2.35 lakh crore.
  • The Centre acknowledged that States are likely to face this huge GST revenue shortfall as the economy may contract due to COVID-19, which it termed as an unforeseen “act of God”.
  • The center has offered two options for borrowing by States to meet the shortfall.
  1. The first option assumes 10% revenue growth, which put the compensation requirement at Rs 97,000 crore, due to ‘implementation issues’.

 o In this case, states will be allowed to borrow through a deal with the RBI, facilitated by the Centre.

  1. The second option is that the entire gap of ₹2.35 lakh crore can be met by the borrowing by the States by an RBI arrangement.
  • The opinion of the Attorney General of India was cited to put forward the argument that GST compensation has to be paid for the transition period from July 2017 to June 2022, but the compensation gap cannot be bridged using the Consolidated Fund of India.
  • As per the GST (Compensation to States) Act, 2017, states are guaranteed compensation for revenue loss on account of implementation of GST for a transition period of five years (2017-2022).

 o The compensation is calculated based on the difference between the current states’ GST revenue and the protected revenue after estimating an annualised 14% growth rate from the base year of 2015-16.

 o Any shortfall has to be compensated from the receipts of Compensation Cess imposed on selected commodities that attract a GST of 28 per cent .

 o At present, the cess levied on sin and luxury goods such as tobacco and automobiles flows into the compensation fund. 



 o States no longer possess taxation rights after most taxes, barring those on petroleum, alcohol, and stamp duty, were subsumed under GST.

 o GST accounts for almost 42% of states’ own tax revenues, and tax revenues account for around 60% of states’ total revenues.



  • Creation of common national market: By amalgamating a large number of Central and State taxes into a single tax.
  • Mitigation of cascading effect: GST mitigated ill effects of cascading or double taxation in a major way and paved the way for a common national market.
  • Reduction in Tax burden: From the consumers’ point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods.
  • Making Indian products more competitive: Introduction of GST is making Indian products more competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production.
  • Easier to administer: Because of the transparent and self-policing character of GST, it would be easier to administer.



  • It is the 1st Federal Institution of India, as per the Finance minister.
  • It will approve all decision related to taxation in the country.
  • It consists of Centre, 29 states, Delhi and Puducherry.
  • Centre has 1/3rd voting rights and states have 2/3rd voting rights.
  • Decisions are taken after a majority in the council.



  • Falling states’ economy:

 o Finances of over a dozen states are under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlays amid the pandemic-induced lockdowns and the need to spend on healthcare.

  • Fiscal federalism:

 o Lesser tax sharing: The Fourteenth Finance Commission allotted 42% of central government tax revenues to States. However, Accountability Initiative’s analysis of State Budgets shows that States received only 30% of central tax collections during the 2015-19 period.

 Cess funds not shared: The Centre raised an estimated ₹3,69,111 crore revenue through cesses and surcharges in 2019-20 alone. These are not shareable with States.

  • Meddling with state list: Using cesses on agriculture [Krishi Kalyan cess] and sanitation [Swachh Bharat cess], the Union is entering domains that are a part of the state list.
  • Implementation of GST: States don’t have any autonomy on GST rates and, therefore, their taxation authority has squeezed further.
  • Excess compensation fund absorbed by the center: When the GST compensation cess exceeded the amount that had to be paid to States, the Central government absorbed the surplus.
  • The high rate of 14%, which has compounded since 2015-16, has been seen as delinked from economic realities. There is a proposal of a revenue growth rate of 10.6%



  • It is the most important of all government accounts.
  • This fund was constituted under Article 266 (1) of the Constitution of India.
  • All revenues received by the government by way of direct taxes and indirect taxes, money borrowed and receipts from loans given by the government flow into the Consolidated Fund of India.
  • All government expenditure is made from this fund, except exceptional items which are met from the Contingency Fund or the Public Account. Importantly, no money can be withdrawn from this fund without the Parliament’s approval.



  • The FRBM is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence and reduce its fiscal deficits.
  • It was first introduced in the parliament of India in the year 2000 by Vajpayee Government for providing legal backing to the fiscal discipline to be institutionalized in the country.
  • Subsequently, the FRBM Act was passed in the year 2003.



  • It was mandated by the act that the following must be placed along with the Budget documents annually in the Parliament:
  • Macroeconomic Framework Statement
  • Medium Term Fiscal Policy Statement and
  • Fiscal Policy Strategy Statement



  • Due to the consumption-based nature of GST, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu feared a revenue loss.
  • Thus, GST Compensation Cess or GST Cess was introduced by the government to compensate for the possible revenue losses suffered by such manufacturing states.
  • However, under existing rules, this compensation cess will be levied only for the first 5 years of the GST regime – from July 1st, 2017 to July 1st, 2022.
  • Compensation cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.



  • This is the most appropriate time to provide them relief through the Consolidated Fund of India.Prime Minister proudly described GST as a ‘Good and Simple Tax’ which would usher in a glorious economic future for India.


QUESTION: What do you understand by human capital? Explain how human capital formation contributes to economic growth and development.





  • Cumulative human capital and potential.



  • India’s crimes data recording system is not built to capture exact data, hence we do not know what proportion of pregnancies in India start off without the consent of the woman.Measuring and tracking matters of import is critical to individual, community as well as national well-being


  • Intergenerational impact of a regretful and anxiety-loaded pregnancy is inadequately quantified by current clinical or epidemiological tools.
  • Since India’s crime data recording system is not built to capture subtleties, what proportion of pregnancies in India start off without the consent of the woman is not known.


  • A desired pregnancy is to be supported by a fully functional health-care system, able to anticipate complications before time and facilitating a safe delivery.
  • Provisioning separate, functional toilets and sanitary pads for girls, and teaching boys biology and gender differences are key enablers to ensuring gender parity in school completion rates.
  • Ensuring secondary school completion of every child, especially girls in rural areas, has far-reaching impact, and needs to be pursued single-mindedly.



  • What is valuable is measured frequently, at different life stages, and at disaggregated levels: birthweights; the heights and weights of our children when they enter school; school completion rates; perhaps the age, height and weight of a first-time pregnant woman; and most definitely, the number of women in the formal workforce who are on a par with men in terms of earning.
  • Underage marriage of girls must become history.
  • For a nation with plans to assign digital health IDs to everyone, what is additionally required is the making of this moving average data live and visible to the people and their government.
  • Teaching school-leaving girls and boys the notion of consent, and also the basics of contraception, will ensure that the start of every pregnancy will be a desired and happy one.



  • Data helps; timely, disaggregated, multidimensional data helps immensely in ensuring collective well being, physical, mental and social.
  • People are India’s greatest possession and will remain so for the conceivable future, provided they are in a state of well-being.
  • An ill-educated, anxious population is a tinderbox, capable of self-harm as well as being kindling for malice-driven mobilisation.
  • Addressing this requires a whole of life and whole of society approach, and measuring the outcomes that matter, regularly.
  • Hopefully the 2017 edition of the national health policy and the new education policy unveiled last month will be the twin rails that India rides towards a true demographic dividend.



 Human capital consists of the knowledge, skills, and health that people accumulate over their lives, enabling them to realize their potential as productive members of society.

 As part of this report, the World Bank has launched a Human Capital Project (HCP).

 o The HCP programme is a program of advocacy, measurement, and analytical work to raise awareness and increase demand for interventions to build human capital.

 o There are three components of HCP-

  • a human capital measurement metric called the Human Capital Index (HCI)
  • a programme of measurement and research to inform policy action
  • a programme of support for country strategies to accelerate investment in human capital.



 The HCI has three components:

 o Survival, as measured by under-5 mortality rates

 o Expected years of Quality-Adjusted School which combines information on the quantity and quality of education:

  • quality is measured by harmonizing test scores from major international student achievement testing programs.
  • quantity from the number of years of school that a child can expect to obtain by age 18 given the prevailing pattern of enrolment rates across grades in respective countries.

 o Health environment is measured by

  • adult survival rates.
  • the rate of stunting for children under age .



  • MPI captures the multiple deprivations that people in developing countries face in their health, education and standard of living.
  • India accounts for 28% of the 1.3 billion multidimensional poor.


  • The Human Development Index (HDI) is a statistic composite index of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development.


  • A country scores a higher HDI when the lifespan is higher, the education level is higher, and the gross national income GNI (PPP) per capita is higher.
  • It was developed by Pakistani economist Mahbub ul Haq and was further used to measure a country’s development by the United Nations Development Programme (UNDP)’s Human Development Report Office.



  • A long and healthy life: Life expectancy at birth.
  • Education index: Mean years of schooling and Expected years of schooling.
  • A decent standard of living: GNI per capita (PPP US$)


Highlights -Human Development Index 2019:

  • India ranks 129 out of 189 countries on the 2019 Human Development Index (HDI) — up one slot from the 130th position last year.
  • Norway, Switzerland, Ireland occupied the top three positions in that order. Germany is placed fourth along with Hong Kong, and Australia secured the fifth rank on the global ranking.
  • Among India’s neighbours, Sri Lanka (71) and China (85) are higher up the rank scale while Bhutan (134), Bangladesh (135), Myanmar (145), Nepal (147), Pakistan (152) and Afghanistan (170) were ranked lower on the list.
  • As per the report, South Asia was the fastest growing region in human development progress witnessing a 46% growth over 1990-2018, followed by East Asia and the Pacific at 43%.
  • India’s HDI value increased by 50% (from 0.431 to 0.647), which places it above the average for other South Asian countries (0.642).
  • However, for inequality-adjusted HDI (IHDI), India’s position drops by one position to 130, losing nearly half the progress (.647 to .477) made in the past 30 years. The IHDI indicates percentage loss in HDI due to inequalities.
  • The report notes that group-based inequalities persist, especially affecting women and girls and no place in the world has gender equality. In the Gender Inequality Index (GII), India is at 122 out of 162 countries. Neighbours China (39), Sri Lanka (86), Bhutan (99), Myanmar (106) were placed above India.
  • The report notes that the world is not on track to achieve gender equality by 2030 as per the UN’s Sustainable Development Goals. It forecasts that it may take 202 years to close the gender gap in economic opportunity — one of the three indicators of the GII.
  • The report presents a new index indicating how prejudices and social beliefs obstruct gender equality, which shows that only 14% of women and 10% of men worldwide have no gender bias.
  • The report notes that this indicates a backlash to women’s empowerment as these biases have shown a growth especially in areas where more power is involved, including in India.



 The tools to get these measurements must be employed meaningfully and must be seen in real-time to be able to take corrective actions where needed.



  • India’s huge demographic dividend remains unutilised due to variety of factors. HCI scores on sub-components will help India direct its human capital developmental efforts at the factors lagging behind the most.
  • The areas of health and education needs urgent policy attention with increased investment and more inclusive approach.India should take a more comprehensive view of development that incorporates all elements of human capital.
  • A robust state capacity and bureaucracy is required to implement state-sponsored programmes.
  • Real-time data and increased frequency of credible measurement of investments made in education, health and areas of technological adoption is required to assess the progress in human capital development.

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