a    tr   t re in ndia     17.15
               with lower per capita NSDP will receive     Union taxes in a fundamental way—dropping the
               more than those with a higher per           Article 272 and substantially changing the Article
               capita NSDP. This results from the fact     270. The new Article 270 provides for sharing of
               that CAS transfers, which tended to be      all the taxes and duties referred to in the Union
               discretionary, were less progressive than   List putting all in a ‘divisible pool’. There are some
               Finance Commission transfers.               exceptions to it. The taxes and duties referred in
          To be sure, there will be transitional costs     the Articles 268 and 269 of the Constitution,
     entailed by the reduction in CAS transfers. But the   together with surcharges and cesses on taxes and
     scope for dislocation has been minimised because      duties (referred in the Article 271) and any cess
     the extra FFC resources will flow broadly to the      levied for specific purposes—do not fall under this
     states that have the largest CAS-financed schemes.    ‘pool’.
          The far-reaching recommendations of the               The new arrangement of tax devolution
     FFC, along with the creation of the NITI Aayog,       came as a follow-up to the recommendations of
     will further the government’s vision of cooperative   the 10th FC (1995–2000) which the FC termed
     and competitive federalism. The necessary, indeed     as the ‘Alternative Method of Tax Devolution’
     vital, encompassing of cities and other local bodies  (AMD). A concensus between Union and States
     within the embrace of cooperative and competitive     was a advised by the FC for such an arragnement
     federalism is the next policy challenge, which is     to be effected. States were going to get extra 5 per
     believed to be strengthened by the body NITI          cent share in the Union taxes in the AMD, thus, a
     Aayog.                                                serious demand came from them—ultimately, the
                                                           AMD was accepted by the Centre. To make the
        concepTs relaTed To fc                             AMD irreversible, the Goverment of India went
                                                           for the 80th Amendment in the Constituion.
     tAx Devolution
     Advising a formula to distribute the Union tax
     proceeds between Union and the States is the most     Though, tax devolution (from the Divisible Pool)
     important task of a FC, as the share of states in the is the primary instrument to attend the issue of
     net proceeds of Union taxes is the predominant        ‘horizontal imbalances’ of revenue accruing to
     channel of resource transfer from the Centre to       the states, the grants-in-aid is a complimentary/
     states.                                               secondary instrument regarding the same. As per
                                                           the Article 275, the FC recommends the principles
     Divisible Pool                                        as well as the quantum of grants to those states
     It is that portion of gross tax revenue which is      which are in need of assistance – different sums
     distributed between the Centre and the States.        may be fixed for different states (one of the pre-
     The divisible pool consists of all taxes, except      requisites for such grants is the assessment of the
     surcharges and cess levied for specific purpose, net  needs of the states). The 1st FC had laid down five
     of collection charges.                                broad principles for determining the eligibility of a
          Before the 80th Constitution Amendment           state for grants:
     (2000), the sharing of the Union tax revenues with         (i) The Budget of a state as the starting point
     the states was in accordance with the provisions                for examination of a need.
     of articles 270 and 272, as they stood then. This         (ii) The efforts made by states to realize the
     amendment altered the pattern of sharing of                     potential.