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India needs a stout tax system to augment the utilization of financial resources and minimize the mistrust in the aspects of fiscal federalism. Elaborate

Topic: GS-2: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

 GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. India needs a stout tax system to augment the utilization of financial resources and minimize the mistrust in the aspects of fiscal federalism. Elaborate. (250 words)

Reference:  Live Mint

Why the question:

The article presents an analysis of trends in fiscal federalism in India.

Key Demand of the question:

Discuss the need for a robust tax system to strengthen the utilization of financial resources and minimize the mistrust in the aspects of fiscal federalism.

Directive:

Elaborate – Give a detailed account as to how and why it occurred, or what is the particular context. You must be defining key terms where ever appropriate, and substantiate with relevant associated facts.

Structure of the answer:

Introduction:

Start with brief context of the question.

Body:

The answer body must have the following aspects covered:

  • Trends in fiscal federalism in India; Widening scope of devolutions: Number of taxes included in the divisible pool has increased since 1951, and the States have been allocated a growing share of the taxes collected in the divisible pool. In 2000, as a result of a constitutional amendment, all taxes collected by the Union government were made shareable with states.
  • Issues with the fiscal federalism in India – Lack of adequate devolution, Stagnant tax revenues.
  • Suggest solutions to address the issues.

Conclusion:

Conclude that a buoyant tax system: can ease the battle for resources in our federal system, and hopefully minimize the mistrust that has grown in recent years between the Centre and states.