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

GrantsSubscribe to Grants

Is the Special Category Status Really Dead?

Though the Fourteenth Finance Commission report gives an impression that the special category status given to some states has de facto been abolished, the reality is that the benefi ts enjoyed by these states remain well protected. The biggest flaw of the special category mechanism is that the benefits flow in perpetuity without any accountability or performance monitoring of the states. This has made them overwhelmingly dependent on central funding. It is therefore imperative to bring in more accountability into the mechanism of such liberal transfer of funds and their end use.

Evolving Centre–State Financial Relations

After the Fourteenth Finance Commission award, aggregate transfers as a percentage of gross domestic product has increased, while grants as a percentage of GDP has declined. The centre is resorting to cess and surcharges that are not shared with the states. This would mean denial of revenue to states, which goes against the spirit of the Constitution. Further, the states have a reduced untied fi scal space, with the union’s share in Centrally Sponsored Schemes in 2016–17 (BE) being reduced. Finally, in the absence of plan transfers, post 2017–18, the focus should be to develop a framework for non-fi nance commission grants to states which is predictable and certain.

Impact of Grants on Tax Effort of Local Government

that higher grants are given to more populous, and hence, more needy panchayats. Impact of Grants on Tax That is as it should be and there is certainly nothing wrong with such a design. The negative relationship between un- Effort of Local Government GR An important prerequisite of fiscal empowerment of local bodies is to design and implement a formula-based, equitable and efficient transfer system. Unfortunately, despite the constitutional amendment to empower rural local bodies, designing an appropriate fiscal transfer system has not received the attention it deserves. The reason for this has to be found in the paucity of systematic analysis of the impact of the transfers from states to local bodies. From this perspective, the study by Rajaraman and Vashishta (RV) on
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