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