Indian Fiscal Federalism

Abstract The last few years witnessed momentous changes in Indian fiscal federalism, the contours and implications of which are still unfolding. A new institution titled National Institution for Transforming India was established in January 2015 replacing the Planning Commission. The classification of expenditure into Plan and non-Plan was dispensed with effect from 2017–18. The introduction of much awaited goods and services tax (GST) in July 2017 fundamentally altered the relative roles of Union and States in regard to indirect taxes. The establishment of GST Council on a permanent basis has added a new institutional mechanism. The book, besides presenting a historical account of evolution of fiscal federalism, has suggested ways and means of addressing the immediate issues arising out of recent developments as well as persistent issues. The book covers the working of the institutions like the Finance Commission, the erstwhile Planning Commission, and the instruments for transfer of resources from the Union to the States, as well as the considerations that have governed such transfers and their equity. The book also covers the promise and performance of NITI Aayog and the emergence of the GST Council, a new permanent institution in Indian fiscal federalism. The book presents a practitioner’s perspective of the working of fiscal federalism in India since Independence and how the institutions like the Finance Commission have adapted to changes and how the institutional mechanism envisaged in the Constitution stood the test of time and is still evolving. Despite the changes, the Union–State fiscal relations are facing challenges and are at crossroads now. An attempt is made to present broad contours of the way forward.