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Fiscal federalism plays a vital role in the effective functioning of a federal system of government. The Indian government should take proactive steps to address issues related to fiscal federalism and implement measures to enhance the autonomy of states in financial matters. Discuss.

Topic: issues and challenges pertaining to the federal structure

4. Fiscal federalism plays a vital role in the effective functioning of a federal system of government. The Indian government should take proactive steps to address issues related to fiscal federalism and implement measures to enhance the autonomy of states in financial matters. Discuss. (250 words)

Difficulty level: Moderate

Reference: Live Mint

Why the question:

The Sixteenth Finance Commission (16th FC) is likely to be appointed soon. It is a good time to reflect on some challenging issues of fiscal federalism that the 16th FC may have to face.

Key Demand of the question:

To write about the evolution of fiscal federalism in India, issues in it and measures needed to overcome the issues.

Directive:

Discuss – This is an all-encompassing directive – you must debate on paper by going through the details of the issues concerned by examining each one of them. You must give reasons for both for and against arguments.

Structure of the answer:

Introduction: 

Begin by defining fiscal federalism in India.

Body:

First, give a brief about the development of fiscal federalism in India since independence.

Next, write about the various issues with respect to fiscal federalism in India – opacity, GST issues, FRMBA, impact of the pandemic etc.

Next, write about the measures needed to rectify the above.

Conclusion:

Conclude with a way forward.