In the Name of ‘Cooperative Federalism’

Context: The center needs to uphold the cooperative federalism in a true spirit in devolving funds to the states during this pandemic crisis.

Issues related to cooperative federalism:

• Tax devolution to States: has been consistently below 14th Finance Commission projections.

• According to a study by the Centre for Policy Research, there is a ?6.84 lakh crore gap in tax devolution to States. 

• Delayed payments: For example, the Centre paid  GST compensation for December 2019 and January 2020,  in June 2020 after a delay of more than five months.
• Imposition of cess: The Centre has imposed a series of cesses, which are not part of the divisible pool and not shared with the States. 
• Spending burden on states: States spending on programmes and projects is 64% more than the center as compared to 46% in 2014-15. 
• Impact of COVID-19 crisis: States are being required to spend more to help common citizens but the support from the Centre is negligible.

• Conditions for spending: Centre has raised the fiscal deficit limit under FRBM for States from 3% to 5%. But 1.5% of increased spending is dependent on fulfilling certain conditions by states.

Conclusion: There is a need for greater flexibility and consultation by the center in devolving funds to the states on time.