17.16        ndian     onom
        (iii) The grants should help in equalizing the   fiscAl DisciPline
              standards of basic services across states.
                                                         This as a criterion for tax devolution was used by
         (iv) Any special burden or obligations of       the 11th and 12th FCs to provide an incentive
              national concern, though within the        to states managing their finances prudently. The
              state’s sphere, should also be taken into  criterion was continued in the 13th FC also. The
              account.                                   index of fiscal discipline is arrived at by comparing
          (v) Grants might be given to further any       improvements in the ratio of own revenue receipts
              beneficent service of national interest to of a state to its total revenue expenditure relative
              less advanced states.                      to the corresponding average across all states in
           The grants recommended by FC are              the country.
     predominantly in the nature of general purpose
     grants meeting the difference between the assessed  Pc As collAborAtor
     expenditure on the non-plan revenue account of      While the 12th FC (2005–10) was being set
     each state and the projected revenue including the  up, the GoI decided to make the Planning
     share of a state in Central taxes. These are often  Commission (PC) function as a ‘collaborator’ to
     referred to as ‘gap filling grants’.                the FC—one member of the PC was added as
           The scope of grants to states, over the yaer, an ‘additional member’ on the panel of the FC
     was extended further to cover special problems.     (the FC includes four members including the
     Following the 73rd and 74th Amendments to           Chairman)—as a link between the bodies. This
     the Constitution, FCs were charged with the         arrangement was continued with in the 13th
     additional responsibility of recommending           and 14 FCs. It is believed that this arrangement
     measures to augment the Consolidated Fund of a      was greatly helpful in bringing in a better idea
     State to supplement the resources of local bodies.  about the revenue imbalances of the states. While
     This has resulted in further expansion in the       the government did set up the NITI Aayog, no
     scope of FC grants. The 10th FC was the first       announcement came in this regard – there might
     Commission to recommend grants for rural and        be some developments in this regard once the
     urban local bodies. This way, the scope of grants-  15th FC (2020–25) is set up in future.
     in-aid has gone for considerable extension, over
     the time.                                              leGiTiMacy and TaxaTion
                                                         India commenced with a broad-based tax reforms
     fiscAl cAPAcity                                     programme in 1991 as an important part of
     The fiscal capacity (also called ‘income distance’) the economic reforms process. Simplifying tax
     criterion was first used by the 12th FC, measured   structure, cutting rate of taxes, enhancing tax
     by per capita GSDP as a proxy for the distance      compliance and broadening the tax base are the
     between states in tax capacity. When so proxied,    major contours of this reform programme. But even
     the procedure implicitly applies a single average   today, India has not fully translated its democratic
     tax-to-GSDP ratio to determine fiscal capacity      vigour into commensurately strong fiscal capacity.
     distance between states. The 13th FC changed        The tax base of India is still not adequate. To build
     the formula slightly and recommended the use of     fiscal capacity it is essential to create legitimacy in
     ‘separate averages’ for measuring tax capacity, one the state. In this regard the latest Economic Survey
     for general category states (GCS) and another for   2015-16 has presented a very timely and suitable
     special category states (SCS).                      piece of analysis. The document adds that to build