ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Rendering Finance Commissions Obsolete

Rendering Finance Commissions Obsolete THE World Bank has apparently suggested, in its 'country economic memorandum' prepared for the last aid-India consortium meeting in Paris in July, that to ease the effect of tariff reductions on the central government's finances, the proportion of central tax proceeds transferred to the states should be reduced. A specific suggestion by the World Bank is that the new excise duties levied by the union government should be exempted from the revenue-sharing arrangement with states. The World Bank's structural adjustment programme calls for drastic reduction in customs and excise duties and, simultaneously, the slashing of fiscal deficits. In the Bank's view what makes the fiscal adjustment difficult is the revenue-sharing arrangement with the states. In its place, it has been proposed, the centre could commit itself to transferring to the states a certain proportion of GDP, which would allow it to keep additional revenues stemming from any broadening of the tax base and from improved tax administration. The World Bank also lists a variety of initiatives that the state governments can take to improve their own finances which include, predictably, raising of cost recovery rates for power and irrigation, greater emphasis on efficient operation and maintenance of infrastructure sector, weeding out of low priority state public investment projects and better utilisation of states' tax sources (mainly agricultural and property taxes). The central government has also been advised to help the states improve their finances by; among other things, "setting a good example".

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