The Hindu Business Line : Fiscal imbalance

This is with reference to "Correct the federal fiscal imbalance" (Business Line, April 9). The article rightly emphasised the urgent need to correct the fiscal imbalance in the States.

The basic rule of fiscal federalism that expenditure assignment must proceed tax assignment has been ignored in India.

The vertical imbalance in the federal fiscal may also be attributed to the advent of non-statutory mechanisms like Planning Commission and centrally-sponsored schemes.

Though the Constitution envisages the Finance Commission to be the sole institution to decide on the transfer of financial resources to the States, the Planning commission, formed by an executive resolution, has encroached upon the constitutional role of the Finance Commission.

At present, the non-statutory transfers in the form of plan grants to the States from the largest component of grant transferred to the States from the Centre.

The best way to correct the widening fiscal imbalances is to effect better coordination between the Finance Commission and the Planning Commission and also to devolve more powers to the States to widen their taxation power and tax base.

C. Ramesh

Keeramangalam (TN)

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