Q6: Describe any three characteristics of distribution of power between the center and states in India. (2020)

Describe the vertical and horizontal forms of power sharing exercised in India.

India's state-led electricity transition: A review of techno-econimic, social-technical and political perspective

Which of the following states of India enjoy special powers under Article 371A of theConstitution of India?A. NagalandB. RajasthanC. Himachal PradeshD. Tamil Nadu

“The question of Centre-State relations has become the focal point of discussion for a number of reasons”- Comment on this statement and point out the reasons for conflict between Centre and State. Please use this text. please also add relevant examples from India where you can. if these examples have some facts and figures it would be nice. please make the response about 700 words. thank you. {12.5 TRENDS AND ISSUES IN FISCAL FEDERALISM IN INDIA 12.5.1 Centralisation and Vertical Imbalance Federalism in India has been evolving over time, with the broad structure given by the Constitution proving to be durable. However, the fiscal aspect of it has struggled to align with the political evolution of India. After independence, the country saw a politically dominant central government, with the State governments basically playing the role of followers, primarily a result of most State governments dominated by the same political party that was in power at the Union level. This political landscape started changing gradually by the ‘sixties, and by the mid-seventies, regional parties and others not in power at the centre were challenging the political monopoly, often successfully. The political non- conformity among the Union and States has now become the norm, and this has had implications for fiscal federalism, mainly expressed as the demand from the States for financial independence and autonomy. There were, to be sure, institutional responses to this development. The Planning Commission, for example, shifted from a system of scheme-based discretionary financial support system for State Plans, to a substantively formula-driven, block-grant based system in 1969 with the introduction of the well-known ‘Gadgil formula’ (later modified a little) designed to reduce micro-management of State Plans and enhance States’ autonomy. Similarly, several Finance Commissions have also tried to reduce vertical imbalance as best as they could. But in general, the Union government has not been particularly supportive of greater fiscal – particularly revenue – decentralisation, although there have been a few instances of moving in the direction of greater State level financial autonomy. Independent analysts have branded the system in India as ‘quasi-federalism’ because of certain centralising features– the primary one being the power of the national legislature to redefining State boundaries and change the political status of a State. This power has already been exercised a few times. Some other features like residuary powers resting with the Union, and the introduction of central planning through the creation of Planning Commission by the executive, have contributed to this view of a centralised federation. The vertical imbalance in revenue raising powers has also been quoted in this context, although most large federations are characterised by this feature in varying degrees. Because of the persisting need for resources to finance public interventions in a developing India, both the central and the State governments are always trying to garner resources for themselves, and this takes several forms, one of which is to get (or keep, as the case may be) as much as feasible for themselves. It should be noted here that the Union has access to additional sources of funds including deficit financing that the States do not have, and hence the position of the two levels of governments are not symmetrical. The Finance Commissions have generally been sympathetic to the plight of the States and have tried to allocate a fair share of resources to them. But the Union has tried to thwart these efforts often, as can be deduced from the following examples. 1. In the early years of independent India, there was only one income tax covering both personal and corporate income tax. In 1961, the relevant Act was overhauled, and the accounts of the Union split the two income taxes into different major heads. This was followed by the position that corporate income tax was now a separate tax, and since the Constitution did not ask for sharing this and only income tax (interpreted to mean just the personal income tax), corporate income tax was not shareable. De facto additional resource mobilisation through personal income tax also decreased following this episode until the 10th Finance Commission recommended sharing of all taxes of the Union. 2. A recent example of this tug-of-war for resources is provided by the Union government’s reaction to the increased tax devolution recommended by the 14th Finance Commission. While a large part of this increase was actually compensatory in nature consequent to abolition of the Plan transfers and eschewing sector-specific and scheme-based grants, only the increase was highlighted, and was followed by a restructuring of the financing of Centrally Sponsored Schemes such that, the additional financing required from the States practically wiped off whatever little net benefit the 14th Finance Commission had provided to the States. 3. A third example relates to the rather liberal use of cess and surcharges by the Union government in recent years, a trend that is still continuing. Suffice it to point out that cess and surcharges are excluded from shareable taxes and have increased from about 10 per cent of gross tax revenues of the Union to 18.55 per cent between 2011-12 and 2019-20. 4. A fourth and final example is about mineral royalties payable to States on major minerals 10 extracted from within their jurisdiction. Royalty rates are statutorily required to be reassessed at given intervals, usually to raise them to allow States to share the benefits of rising prices. This feature was really important when royalty rates were specific (i.e., fixed amounts per unit of output), and the central government delayed revisions in the face of fast- rising prices of minerals like iron ore; now that these rates have been changed to ad valorem (percentage of value per unit of output), theoretically rate revisions should be less of a problem. However, there are still complaints from States that because major minerals are largely extracted by central public enterprises, the Union government often uses price data for determining value of minerals that underestimate true market value. As against the above examples, there are some examples of the central government accommodating States’ interests too. For instance, in the year 2000, the Union changed its usual practice of lending all foreign assistance in the form of debt or combination of debt and grants under its common terms for lending to States (at that point of time, the rates of interest charged were substantially higher than market rates, and an administrative charge was payable in addition) to ‘back-to- back’ passing on of such assistance (meaning on the same terms as received from the foreign source). This essentially meant that States could take advantage of the soft terms attached to such assistance, while they also had to bear the exchange risk of foreign-currency denominated loans. The centralising tendency is visible on the expenditure side also, but more qualitative than quantitative. First, the constitutional provision of the Union dominance in the subjects included in the Concurrent List (decisions by the Parliament overrule any State legislations in these areas) facilitates centralisation by design. This has been expanded with a few cases of constitutional amendment moving subjects from State List to the Concurrent List. Centrally Sponsored Schemes have been, however, a greater irritant in the context of centre-State financial relations. These are centrally initiated and designed schemes relating to subjects in the State domain, funded fully or partially by the Union, the latter usually with matching requirements. Resource-starved State governments cannot afford refusal to participate, but matching grants distort State priorities by pulling in more State resources for the activity supported by the Scheme than would otherwise be the case (see Cullis and Jones, 1992, pp. 307-311 for a theoretical discussion of the effect of different types of grants on recipient governments’ expenditure). Administered by central ministries relevant to the coverage of the scheme, in the last two decades, grants under these schemes have outweighed other types of grants. Apart from limiting State autonomy in practice, these grants also modify the regional pattern of equity and the incentive structure built into the Finance Commission transfers. To be sure, there is a place for such conditional matching grants in a federal system; but it is the quantum of these grants that really generate skepticism about their legitimacy in India. These grants have a tendency of proliferating and attempts to limit their number and financial flows in the past have been defeated by the internal dynamics of the governmental processes within the Union government. 12.5.2 Regional Equity and Horizontal Imbalance India is one of the countries with fairly high levels of regional inequality. Though regional inequality and horizontal imbalance are not exactly the same as the latter refers to the limited context of public finances, there would be a presumption that these two would be highly correlated. This is because the poorer regions would have a smaller revenue base to exploit and greater need for public interventions on account of lower ability of its residents to spend on private goods and services. This is certainly the case in India, if we consider expenditure needs and revenue potentials of the States rather than the actual receipts and expenditures (Sen, 2011). A major objective of the inter-governmental transfers is to reduce vertical imbalances, which can then contribute to reduction in regional inequalities. Admittedly, the latter is determined by several interrelated factors other than the State’s public finances, some of which are within the public policy domain. It is this vicious cycle that the system of fiscal federalism is expected to disrupt; unfortunately that has not happened to any appreciable extent. The salient causes may be summarised as follows: 1. Various elements of public policy have worked at cross purposes. Empirical studies have shown that among different channels of fiscal transfers, only Finance Commission transfers have been somewhat equalising (inversely related to per capita income of individual States). Earlier Plan assistance, transfers under Centrally Sponsored and Central Plan Schemes and other transfers have no significant relationship with per capita income. Central investments in public sector undertakings also have not been progressive, nor the major budgetary subsidies of the central government or credit flows from the financial institutions (Rao and Sen, 1996). The lack of coordinated public policy aiming to reduce regional disparities has thus witnessed a widening of the disparities over the years. 2. Even the Finance Commission transfers have been less equalising than they could have been. Their refusal to consider investment requirements of various States – particularly important for low-income States – even after the discontinuation of the Planning Commission that was expected to attend to this aspect has pushed this consideration out of the agenda for Centre-State financial flows, to the detriment of prospects of dynamic equalisation. Even when considering revenue deficit grants, the receipts and expenditures are estimated using projections on the basis of actual values for a base year and not normative estimates (i.e., revenue potential and expenditure need). Since actual values of expenditure of low-income States are strongly revenue- constrained, this results in underestimating expenditure requirements of these States. In contrast, even a high-income high-spending State can qualify for grants-in-aid if it does not raise adequate revenues in fact. Even the latest report – the First Report of the 15th Finance Commission – uses a similar methodology, building in perverse incentives and negating equalisation. 3. The FRBM Act also constrains developmental effort of low-income States. The absolute limit on fiscal deficit (implying a limit on borrowings), makes it difficult for low-income States to borrow and invest beyond the prescribed limit, even if such a course of action is financially viable and required for development purposes. Thus, with the design of fiscal federalism not providing resources for accelerating the developmental process to the low-income States, they are left to do so with the resources they can raise themselves, which are constrained by the smaller base compared to other States. Widening disparities is a logical outcome of this framework }

Discuss the powers and functions of the President of India.