Question Q.14Discuss and suggestGS2GS2

How is the 'vertical' and 'horizontal' devolution of taxes to the states decided? Highlighting the concerns raised by some states regarding the devolution of taxes, suggest corrective measures.

Main Body

Horizontal & vertical devolution of taxes are distribution of central pool of taxes (by FE recommendation) among gates & between Centre & States, respectively.

The decision of devolution are:

1Vertical devolution: between Centre & States, as per the responsibilities & expenditure requirement assessing to Article 246 & Seventh Schedule. Centre gets 58.1. As the debt & fiscal burden are 58.1. & 45.1. of GDP

2Horizontal distribution: on the basis of income distance (top three states averge) / population, per-capita, demographic peyen. for 4 states.

These are equity & efficiency parameters set by Terms of Reference & Finance Commission each time.

Concerns raised by States:

1Punitive Down states over their better demographic peformance: law weigher(10.9) & created central pool 10% INE → law TTR - below 8

2Non-Plan states: agrees shall due to powemin & income gap (Article Gfea grants to & per % expenditure

3Less & shrinkage: 18.1 of PRD are excluded from PRO, exclusion to Centre

4More efficiency parameter demand by rich states (Article Fiscal Prudence, named revenues, human resousces development

5Gross state demand of special status (Article Bids wn North East

How to redress: (1) Increase some efficiency parameter weights like demographic peformance (2) Penalize sales equition favours distribute (2) Include CES & Swalloing in share pool: (2) Reduce Fed name of grain to PKA so to increase their yielding

Fc is appearing to endorse fiscal federalism

236 words12 paragraphs

Examiner score

0.35/10

Open original scan

Page 30

Topper

GAURAV KUMAR

AIR 3772025

Subject & Paper

GS2GS2

Topic

Federal Structure - Functions, Responsibilities, Devolution of Powers and Finances

Centre-State Financial Relations

Writing Stats

236

Total words

Paragraphs

analytical

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