{"id":30363,"date":"2025-05-23T18:05:46","date_gmt":"2025-05-23T12:35:46","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=30363"},"modified":"2025-05-23T18:06:03","modified_gmt":"2025-05-23T12:36:03","slug":"understanding-indias-fiscal-federal-relations","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/","title":{"rendered":"Understanding India\u2019s Fiscal Federal Relations"},"content":{"rendered":"<h1 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Understanding_Indias_Fiscal_Federal_Relations\"><\/span><span style=\"font-family: georgia, palatino, serif;\">Understanding India\u2019s Fiscal Federal Relations<\/span><span class=\"ez-toc-section-end\"><\/span><\/h1>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Relevant_for_GS_paper-2_Federalism\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>(Relevant for GS paper-2, Federalism)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div style=\"width: 810px;\" class=\"wp-video\"><video class=\"wp-video-shortcode\" id=\"video-30363-1\" width=\"810\" height=\"456\" preload=\"metadata\" controls=\"controls\"><source type=\"video\/mp4\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/final-cse-result-ady.mp4?_=1\" \/><a href=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/final-cse-result-ady.mp4\">https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/final-cse-result-ady.mp4<\/a><\/video><\/div>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_68 ez-toc-wrap-center counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >What's Inside this Blog!<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Understanding_Indias_Fiscal_Federal_Relations\" title=\"Understanding India\u2019s Fiscal Federal Relations\">Understanding India\u2019s Fiscal Federal Relations<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Relevant_for_GS_paper-2_Federalism\" title=\"(Relevant for GS paper-2, Federalism)\">(Relevant for GS paper-2, Federalism)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Fiscal_Federal_Relations\" title=\"Fiscal Federal Relations\">Fiscal Federal Relations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Constitutional_Framework_of_Fiscal_Federalism\" title=\"Constitutional Framework of Fiscal Federalism\">Constitutional Framework of Fiscal Federalism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Vertical_and_Horizontal_Imbalance\" title=\"Vertical and Horizontal Imbalance\">Vertical and Horizontal Imbalance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Role_of_the_Finance_Commission\" title=\"Role of the Finance Commission\">Role of the Finance Commission<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#GST_and_Fiscal_Federalism\" title=\"GST and Fiscal Federalism\">GST and Fiscal Federalism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#GST_Compensation_Issue_2017-2022\" title=\"GST Compensation Issue (2017-2022):\">GST Compensation Issue (2017-2022):<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Central_Schemes_and_Conditionalities\" title=\"Central Schemes and Conditionalities\">Central Schemes and Conditionalities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Emergence_of_Competitive_Federalism\" title=\"Emergence of Competitive Federalism\">Emergence of Competitive Federalism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Recent_Developments_2023-24_2024-25\" title=\"Recent Developments (2023-24 &amp; 2024-25)\">Recent Developments (2023-24 &amp; 2024-25)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Challenges_in_Indias_Fiscal_Federalism\" title=\"Challenges in India\u2019s Fiscal Federalism\">Challenges in India\u2019s Fiscal Federalism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Way_Forward\" title=\"Way Forward\">Way Forward<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/triumphias.com\/blog\/understanding-indias-fiscal-federal-relations\/#Read_more_Blogs\" title=\"Read more Blogs:\">Read more Blogs:<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr>\n<td style=\"width: 100%;\">\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Fiscal_Federal_Relations\"><\/span><span style=\"font-family: georgia, palatino, serif;\">Fiscal Federal Relations<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">India\u2019s federal structure, as enshrined in the Constitution, is characterized by a strong center but also a growing emphasis on cooperative and competitive federalism. Fiscal federalism refers to the financial relations between different levels of government\u2014primarily the Centre and the States. In a vast and diverse country like India, where states differ widely in economic strength, population, and needs, maintaining a balanced fiscal relationship is critical to ensure equitable development.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Constitutional_Framework_of_Fiscal_Federalism\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Constitutional Framework of Fiscal Federalism<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The <strong>Seventh Schedule<\/strong> of the Constitution divides powers between the Union and States through three lists\u2014<strong>Union, State, and Concurrent<\/strong>. Financial powers are distributed such that <strong>major taxation powers rest with the Centre<\/strong>, while the States are responsible for implementing most public welfare and development programs.<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Article 268-293<\/strong> deals with the distribution of revenues.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Article 280<\/strong> provides for the constitution of the <strong>Finance Commission<\/strong> every five years to recommend the distribution of <strong>tax revenue<\/strong> between Centre and States.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Vertical_and_Horizontal_Imbalance\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Vertical and Horizontal Imbalance<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-30367 size-full\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-2.png\" alt=\"Vertical and Horizontal Imbalance\" width=\"600\" height=\"323\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-2.png 600w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-2-300x162.png 300w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-2-150x81.png 150w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">India\u2019s fiscal federalism suffers from two types of imbalances:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Vertical imbalance<\/strong>: arises because the Centre has more taxation powers while the States have higher expenditure responsibilities.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Horizontal imbalance<\/strong>: results from differing levels of development and revenue capacities among states.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">To address these issues, institutions like the <strong>Finance Commission<\/strong>, <strong>GST Council<\/strong>, and <strong>NITI Aayog<\/strong> play critical roles.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Role_of_the_Finance_Commission\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Role of the Finance Commission<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The <strong>15th Finance Commission (2020-25)<\/strong>, chaired by <strong>N.K. Singh<\/strong>, made significant recommendations:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>41% of the divisible pool of central taxes<\/strong> to be devolved to states (down from 42% in the 14th FC due to the creation of Jammu and Kashmir as a Union Territory).<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">A new <strong>incentive-based grant structure<\/strong> linked to reforms in power sector, urban local bodies, and health.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">Grants-in-aid for <strong>local governments<\/strong> totaling \u20b94.36 lakh crore.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">This commission emphasized <strong>performance-based devolution<\/strong> and the need for <strong>states to increase own revenues<\/strong>, especially post-COVID-19.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"GST_and_Fiscal_Federalism\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>GST and Fiscal Federalism<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The introduction of <strong>Goods and Services Tax (GST)<\/strong> in 2017 marked a <strong>paradigm shift<\/strong> in Indian fiscal federalism:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">It <strong>subsumed 17 taxes<\/strong> and 13 cesses, creating a <strong>common national market<\/strong>.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">The <strong>GST Council<\/strong>\u2014comprising representatives from the Centre and all States\u2014was created under Article 279A to ensure consensus-based decision-making.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">While GST improved tax compliance and revenue in the long term, <strong>initial implementation issues<\/strong> and <strong>delay in compensation payments<\/strong> to states exposed challenges in cooperative federalism.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"GST_Compensation_Issue_2017-2022\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>GST Compensation Issue (2017-2022):<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-30365 size-full\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection.png\" alt=\"GST Compensation Issue (2017-2022)_ - visual selection\" width=\"792\" height=\"516\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection.png 792w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-300x195.png 300w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-150x98.png 150w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-768x500.png 768w\" sizes=\"auto, (max-width: 792px) 100vw, 792px\" \/><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">The Centre guaranteed a 14% annual growth in GST revenue to states for five years.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">Due to COVID-19, revenues fell short, and the Centre had to <strong>borrow \u20b91.1 lakh crore in FY21<\/strong> and \u20b91.59 lakh crore in FY22 to compensate states.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">The <strong>compensation period ended in June 2022<\/strong>, creating uncertainty for revenue-deficit states like Punjab, Kerala, and Chhattisgarh.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Central_Schemes_and_Conditionalities\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Central Schemes and Conditionalities<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The Centre often introduces <strong>Centrally Sponsored Schemes (CSS)<\/strong> and <strong>Central Sector Schemes<\/strong>, which account for a significant portion of public spending in sectors like health, education, and agriculture.<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">States often complain that these schemes have <strong>rigid guidelines<\/strong> and do not reflect local priorities.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">Example: The <strong>PM Awas Yojana<\/strong>, <strong>PM KISAN<\/strong>, and <strong>Jal Jeevan Mission<\/strong> are centrally funded but implemented by states, leading to friction in cost-sharing.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">To address such concerns, NITI Aayog has recommended <strong>rationalizing CSSs<\/strong>, providing more flexibility to states, and ensuring <strong>Outcome-Based Budgeting<\/strong>.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Emergence_of_Competitive_Federalism\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Emergence of Competitive Federalism<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The shift from a top-down planning model (as followed by the Planning Commission) to a <strong>cooperative and competitive federalism model under NITI Aayog<\/strong> is a transformative change.<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">States are ranked based on performance in sectors like <strong>education, health, SDGs, and infrastructure<\/strong>.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">This has encouraged <strong>healthy competition<\/strong> among states and led to reforms in governance and service delivery.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Recent_Developments_2023-24_2024-25\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Recent Developments (2023-24 &amp; 2024-25)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong> Capital Expenditure Incentives to States<\/strong><\/span><\/li>\n<\/ol>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">In <strong>Budget 2024-25<\/strong>, the Centre announced \u20b91.3 lakh crore for <strong>50-year interest-free loans<\/strong> to states for capital expenditure.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">This promotes fiscal discipline and investment in infrastructure.<\/span><\/li>\n<\/ul>\n<ol style=\"text-align: justify;\" start=\"2\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong> Devolution of Taxes to States<\/strong><\/span><\/li>\n<\/ol>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">According to the Ministry of Finance, <strong>\u20b912.21 lakh crore<\/strong> is estimated to be devolved to states in FY 2024-25\u2014an increase from \u20b911.48 lakh crore in FY 2023-24.<\/span><\/li>\n<\/ul>\n<ol style=\"text-align: justify;\" start=\"3\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong> CAG Reports and State Finances<\/strong><\/span><\/li>\n<\/ol>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\">Recent <strong>CAG reports<\/strong> indicate rising <strong>fiscal deficits<\/strong> and <strong>debt-to-GSDP ratios<\/strong> in many states, crossing the FRBM threshold of 3%.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">States like Punjab, West Bengal, and Kerala are under scrutiny for high <strong>committed expenditure (salaries, pensions, and interest payments)<\/strong>.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Challenges_in_Indias_Fiscal_Federalism\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Challenges in India\u2019s Fiscal Federalism<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-30366 size-full\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-1.png\" alt=\"Challenges in India\u2019s Fiscal Federalism\" width=\"792\" height=\"481\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-1.png 792w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-1-300x182.png 300w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-1-150x91.png 150w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/GST-Compensation-Issue-2017-2022_-visual-selection-1-768x466.png 768w\" sizes=\"auto, (max-width: 792px) 100vw, 792px\" \/><\/p>\n<ol style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Delayed fund transfers<\/strong> from the Centre affect state planning and implementation.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Unequal bargaining power<\/strong>\u2014richer states like Maharashtra and Tamil Nadu often feel penalized in devolution due to population-based formulas.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Dependence on the Centre<\/strong> for grants reduces fiscal autonomy of states.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Political differences<\/strong> between Centre and States influence fiscal relations, especially with opposition-ruled states.<\/span><\/li>\n<\/ol>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Way_Forward\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Way Forward<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul style=\"text-align: justify;\">\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Strengthen GST Council<\/strong> as a true federal forum with better dispute resolution mechanisms.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Empower States<\/strong> with more untied grants and reduce conditionalities in CSS.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\"><strong>Review Finance Commission formula<\/strong> periodically to account for performance and not just needs.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">Encourage <strong>states to expand their tax base<\/strong>, especially property tax and user charges.<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif;\">Promote <strong>cooperative federalism<\/strong> in fiscal decision-making, especially in crises like pandemics or climate-related disasters.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><strong>Conclusion<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-family: georgia, palatino, serif;\">The <strong>dynamics of India\u2019s fiscal federalism<\/strong> continue to evolve, shaped by constitutional mandates, political realities, and economic challenges. As India moves towards becoming a <strong>$5 trillion economy<\/strong>, ensuring <strong>fiscal responsibility, transparency, and balanced Centre-State relations<\/strong> is essential for inclusive and sustainable development. For aspirants of civil services, understanding these intricacies is key to appreciating the functioning of the Indian polity and governance system.<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-27338 size-full\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e.jpg\" alt=\"\" width=\"1080\" height=\"1200\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e.jpg 1080w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e-270x300.jpg 270w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e-922x1024.jpg 922w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e-135x150.jpg 135w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2025\/05\/WhatsApp-Image-2025-05-10-at-12.23.01_ffb3cf5e-768x853.jpg 768w\" sizes=\"auto, (max-width: 1080px) 100vw, 1080px\" \/><\/p>\n<p><span style=\"font-family: georgia, palatino, serif;\"><strong><span class=\"amp-wp-303d451\" data-amp-original-style=\"font-family: 'times new roman', times, serif;\">To Read more topics<\/span><span class=\"amp-wp-303d451\" data-amp-original-style=\"font-family: 'times new roman', times, serif;\">,\u00a0<\/span><\/strong><span class=\"amp-wp-303d451\" data-amp-original-style=\"font-family: 'times new roman', times, serif;\"><strong>visit:<\/strong>\u00a0<a href=\"https:\/\/triumphias.com\/blog\/?amp=1\">www.triumphias.com\/blogs<\/a><\/span><\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Read_more_Blogs\"><\/span><span style=\"font-family: georgia, palatino, serif;\"><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" 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class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" class=\"ez-toc-section\"><\/span><span id=\"Read_more_Blogs\" 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India\u2019s federal structure, as enshrined in the<\/p>\n","protected":false},"author":1,"featured_media":30364,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[18],"tags":[12399,7013,12403,12401,12400,12402,12398,12404],"class_list":["post-30363","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general-studies-ii","tag-centre-state-finance","tag-cooperative-federalism","tag-finance-commission-india","tag-financial-devolution","tag-fiscal-relations-in-india","tag-gst-and-federalism","tag-india-fiscal-federalism","tag-intergovernmental-fiscal-relations"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/30363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=30363"}],"version-history":[{"count":2,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/30363\/revisions"}],"predecessor-version":[{"id":30371,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/30363\/revisions\/30371"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/30364"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=30363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=30363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=30363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}