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

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Fifteenth Finance Commission Award and the North-eastern States

This paper deals with the expected fiscal transfers to north-eastern states under the Fifteenth Finance Commission award. The analysis reveals that the ratio of central transfers has been declining. However, the structural disabilities of these states necessitates that the union government supplements the finance commission transfers with other budgetary support.

Mainstreaming Climate Change Commitments through Finance Commissions

This analysis suggests that climate change criterion in the intergovernmental fiscal transfer mechanism in India is a significant step to incentivise the conservation of forests. However, the macropolicy channel of this link is through the public expenditure priorities related to climate change commitments by the state governments.

Fiscal Transfers in Pandemic Times

The Fifteenth Finance Commission has trodden carefully in dealing with the controversial terms of reference issued to it in the presidential order. The commission had the challenging task of dividing fiscal resources between the union and the states due to the serious uncertainty posed by the pandemic. In many ways, the recommendations of the commission marks continuity. Devolution of 41% in the divisible pool of taxes to the states, despite the nudging of the centre in the terms of reference to review it and the continuation of revenue deficit grants, are some examples. The phasing out of the revenue deficit grants to the states in the next five years is likely to pose challenges to the fiscally weak states. The conditionalities mandated for availing local body grants may deny the much-needed money for them as the states may not have the incentive to undertake the reforms unless the public pressure builds up. On the whole, the report of the commission is on expected lines; it does not disappoint but all the same, like the previous commissions, it is a work in progress.

Continuity with Change

The two latest finance commissions—the Fourteenth Finance Commission and the Fifteenth Finance Commission—mark a break from the past. The paper explores the structural shift in federal finances with the abolition of the Planning Commission and contemporaneous circumstances that shaped the approach of the Fifteenth Finance Commission and examines the intersections and divergence, continuity and change with the Fourteenth Finance Commission in terms of its treatment of and approach to the three core issues of vertical and horizontal devolution, grants-in-aid to the states and transfers to local governments. It argues that the pervasive impact of the pandemic has shaped the recommendations of the Fifteenth Finance Commission in several ways without compromising on the constitutional principles and retaining the balance in federal transfers between the union and the states and amongst the states. At a time when the growth prospects of the economy are uncertain, the innovative use of targeted grants linked to performance-based criteria for specified sectors through the states and local governments addresses glaring gaps in public services and potentially trigger reform in critical sectors.

Fiscal Transfers and Urban Policy

Urban fiscal policy in India remains poorly understood compared to many rapidly urbanising countries. Using underutilised data from the 2001 Census Town Directory and state legislative records, this study examines the level of fiscal transfers from states to urban centres across India to assess the factors which influence urban dependency. The study finds that urban centres depend on state grants for more than two-fifths of revenue, yet dependency levels vary greatly by the state. It presents the first national, empirical evidence of the determinants of city-level dependence on state government in India. The study also contributes to the very sparse literature on public finance for infrastructure in small- and medium-sized towns across developing countries.
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