Fiscal Federalism Challenges and Debt Management for State Budgets
Source:The Hindu ↗
ఇది ఎందుకు ముఖ్యం
Understanding state finances is crucial for analyzing India's macroeconomic stability, capital expenditure push, and the health of fiscal federalism under constitutional frameworks.
సారాంశం
The article explores the structural challenges, revenue constraints, and expenditure pressures faced by State governments in India as they navigate fiscal federalism, debt management, and the imperative for capital investments.
ముఖ్య అంశాలు
- State governments face a persistent fiscal tightrope balance between maintaining capital expenditure and containing debt levels.
- Revenue growth patterns across states show disparities, heavily reliant on central tax devolutions and own-tax revenues like state excise and stamps/registration.
- Prudent fiscal management requires shifting expenditure focus from non-developmental subsidies and revenue deficits to growth-enhancing capital outlays.
- Cooperative and competitive federalism heavily relies on sustainable state-level fiscal health and adherence to fiscal responsibility legislation (FRBM limits).
ముఖ్యమైన పదాలు
Finance Commission
A constitutional body established under Article 280 that recommends the vertical distribution of tax proceeds between the Centre and States and horizontal allocation among States to promote fiscal equity.
UPSC context
UPSC Prelims & GS Paper II (Polity - Constitutional Bodies & Fiscal Federalism). Evaluates center-state financial relations and tax devolution frameworks.
Goods and Services Tax Act
India’s unified indirect tax system that amalgamated various central and state levies, transforming cooperative federalism by altering state taxation autonomy and revenue-sharing mechanisms.
UPSC context
UPSC GS Paper III (Economy - Resource Mobilization & Taxation). Assesses indirect tax reform impacts on sub-national fiscal autonomy.
Reserve Bank of India
The central banking institution of India that regulates monetary policy, acts as the banker to state governments, and manages short-term liquidity mismatches via Ways and Means Advances (WMA).
UPSC context
UPSC Prelims & GS Paper III (Economy - Banking & Public Debt Management). Tests central bank regulations governing state debt and liquidity.
ప్రిలిమ్స్ ఉచ్చు
State governments have absolute freedom under fiscal autonomy to borrow from domestic and international markets without central government approval.
Aspirants often assume states have total autonomy to borrow externally or exceed FRBM limits without central consent, ignoring Article 293(3) of the Constitution.
అనుసంధానమైన స్థిర భావనలు
What are the constitutional and statutory limitations on State borrowing in India?
- Constitutional Limit: Article 293(3) requires States to obtain central consent for raising fresh loans if they are indebted to the Centre.
- Statutory Limit: FRBM legislation enacted by states caps their annual fiscal deficit generally at 3 percent of GSDP.
- Borrowing Ceiling: The Centre sets net borrowing ceilings (NBC) factoring in off-budget borrowings and guarantees.
అంతర-అంశ నమూనాలు
Fiscal Federalism + Welfare Economics + 16th Finance Commission
State-level fiscal stress from freebies or unfunded mandates often spills over into sovereign ratings and cooperative federalism disputes handled by the Finance Commission.
State Debt Sustainability + RBI Monetary Policy + FRBM Act
Excessive off-budget borrowings and debt guarantees by states create hidden liabilities that complicate macroeconomic stability monitored by the RBI.
Expect a multi-statement prelims question combining FRBM fiscal deficit limits, SGST composition, and the Finance Commission's devolution criteria.
అనుసంధాన PYQలు · 3
అనుసంధాన PYQలు · 3
- 2025MainsGS3
Explain how the Fiscal Health Index (FHI) can be used as a tool for assessing the fiscal performance of states in India. In what way would it encourage the states to adopt prudent and sustainable fiscal policies?
- 2025MainsGS2
Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?
- 2024MainsGS2
What changes has the Union Government recently introduced in the domain of Centre-State relations ? Suggest measures to be adopted to build the trust between the Centre and the States and for strengthening federalism.
