Answer:

Fiscal federalism in India, defined by the financial relations between the Centre and the States, is pivotal for the country’s federal structure. Over the years, these relations have evolved, influenced by constitutional provisions, economic reforms, and political developments. However, challenges such as structural imbalances and recent political developments have strained this relationship. This has necessitated a critical examination of the evolving nature of Centre-State financial relations in contemporary times.

Positives of the Evolving Nature of Centre-State Financial Relations:

• Increased Revenue Sharing: The devolution of a larger share of central taxes to states has empowered states financially.
  For instance: The 15th Finance Commission recommended 41% tax devolution to states, increasing their financial autonomy.
• Enhanced Cooperative Federalism: Dynamic shifts in centre-state relations have paved the way for  a stronger collaborative spirit, bridging governance for mutual growth.
  For example: The GST Council facilitates joint decision-making on tax policies, promoting consensus and collaboration.
• Targeted Financial Support: Specific grants and schemes address regional disparities and promote balanced development.
  For example: The Backward Regions Grant Fund (BRGF) aims to catalyse development in lagging regions.
• Fiscal Responsibility and Budget Management (FRBM) Act: Encourages fiscal discipline among states, ensuring sustainable financial management.
• Technological Integration: Digitization of financial transactions has improved transparency and efficiency in fund transfers.
  For example: The Public Financial Management System (PFMS) ensures timely and transparent fund flow to states.
• Capacity Building: Central assistance in capacity building enhances state capabilities in revenue collection and financial management.
  For example: Central assistance is provided for training programs for state tax officials under the GST regime.
• Greater Autonomy in Scheme Implementation: States have more flexibility in implementing centrally sponsored schemes based on local needs.
  For example: States can tailor the Pradhan Mantri Awas Yojana (PMAY) to suit regional housing requirements.

Drawbacks of the Evolving Nature of Centre-State Financial Relations:

• Fiscal Imbalances: Disparities in revenue-generating capacities lead to fiscal imbalances between states.
  For example: According to a 2024 study on state’s finances by PRS India ,  Bihar, Jammu and Kashmir, and north-eastern states are estimated to raise more than 60% of their revenue from devolution and grants from the Centre.
• Conditional Grants: Centrally Sponsored Schemes often come with conditions that limit state discretion.
  For example: States are required to co-fund CSS schemes, such as the Pradhan Mantri Gram Sadak Yojana, which places additional strain on their financial resources.
• Political Interference: Political dynamics can influence the allocation of funds, leading to inequitable distribution.
  For instance: It is often alleged that states ruled by opposition parties receive fewer central funds.
• Delayed Transfers: Delays in the transfer of central funds affect state budget planning and project implementation.
  For instance: States often face delays in receiving GST compensation payments.
• Dependence on Central Funds: Over-reliance on central funds can undermine state efforts to enhance their own revenue capacities.
  For instance: States with limited industrial bases struggle to generate sufficient internal revenues.
• Regional Disparities: Existing fiscal arrangements do not adequately address regional economic disparities.
  For instance: Northeastern states continue to lag in development despite central assistance.
• Lack of Accountability: Inefficiencies and corruption in fund utilisation at the state level undermine development efforts.
  For instance: Mismanagement of funds has been reported in schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

Measures to Strengthen the Federal Finance Structure while ensuring balanced regional development:

• Strengthening Finance Commission Mandate: Empower the Finance Commission to address contemporary fiscal challenges more comprehensively.
  For instance: Periodic review and adjustment of revenue-sharing formulas to reflect economic changes.
• Enhancing GST Council Efficiency: Improve the functioning of the GST Council for better coordination and dispute resolution.
  For example: Introducing a mechanism for faster decision-making and conflict resolution can significantly improve the efficiency of the council.
• Reforming Centrally Sponsored Schemes: Rationalise CSS to provide states with greater flexibility in fund utilisation.
  For instance: Transforming certain CSS into block grants would enable states to tailor funding to their specific local needs and priorities.
• Promoting Fiscal Discipline: Encourage fiscal discipline among states through incentive-based transfers and performance-linked grants.
  For instance: Under the 15th Finance Commission, performance-based incentives and grants are provided for the social sector, rural economy, governance reforms, and power sector reforms.
• Addressing Regional Disparities: Implement targeted interventions and special packages for underdeveloped regions.
  For example: The North East Special Infrastructure Development Scheme (NESIDS) focuses on infrastructure in Northeastern states.
• Enhancing State Revenue Capacities: Support states in enhancing their revenue-generating capacities through tax reforms and compliance improvements.
  For instance: Providing technical assistance by the union government for better tax administration at the state level.
• Improving Transparency and Accountability: Enhance transparency and accountability in intergovernmental fiscal transfers through regular audits and public reporting.
  

The future of Centre-State financial relations in India hinges on the establishment of a robust federal finance structure. This can be achieved by strengthening institutions, reforming centrally sponsored schemes, and promoting fiscal discipline. These measures will ensure balanced regional development and effectively address the diverse fiscal needs of all states.

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