Deepening Federal Fiscal Asymmetry

Indian federalism, with an accepted centripetal tilt, has been an enduring one. Nonetheless, issues and concerns have emerged from time to time threatening the federal balance. A host of unprecedented developments, at this juncture, are expected to affect the fiscal federal order. A different era of fiscal federalism has already ushered in with two major changes. First, the abolition of the Planning Commission in 2014 that marked the removal of a major platform, where the federal units interacted with each other to shape their development course and received resources for the same. Plan components were more than 30% of the total expenditure of the states in the final years. Ergo, changes in the nature and composition of intergovernmental transfers, the lifeline of federalism, are imminent. Second, the emergence of a common market for the nation has happened with the introduction of the goods and services tax (GST) in 2017. Apart from other repercussions for federal India, there is a concern that the GST may erode the control that states had on their own source of taxes. These two developments were not sudden or unexpected but were in the offing for a while. Apart from these two developments, there are subtle changes underway, which have the potential for altering the federal equation appreciably.

At this critical juncture, two books on Indian fiscal federalism have been published: Indian Fiscal Federalism by Y V Reddy and G R Reddy (Reddy and Reddy, hereafter), and Challenges to Indian Fiscal Federalism by L Chakraborty, R Mohan and T M Thomas Isaac (Chakraborty et al, hereafter). These books, under review here, provide useful insights into the historical context of federalism and offer an elaborate analysis of its emerging tendencies. Authors of these books are eminent policymakers and scholars, having both the insiders’ perspectives, by virtue of being at the helm of the affairs manoeuvring the federal machine from vital positions, and the intellectuals’ reserve to assess the problems from afar.