Explain the financial ties that exist between India’s Center and States. (125 Words) [UPPSC 2021]
Home/uppsc: functions & responsibilities of the union & the states
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Financial Relations Between the Centre and States in India **1. Revenue Sharing: The Central Government and State Governments share revenue primarily through tax distribution. The Finance Commission is responsible for recommending the distribution of central taxes to states. For instance, the 15th FRead more
Financial Relations Between the Centre and States in India
**1. Revenue Sharing: The Central Government and State Governments share revenue primarily through tax distribution. The Finance Commission is responsible for recommending the distribution of central taxes to states. For instance, the 15th Finance Commission recommended a 41% share of central taxes for states for the 2021-26 period.
**2. Grants-in-Aid: States receive grants-in-aid from the Centre to support specific projects or to meet revenue deficits. For example, the Swachh Bharat Mission provided grants to states for sanitation projects.
**3. Borrowing Powers: States can borrow funds, subject to Central Government approval. The Fiscal Responsibility and Budget Management (FRBM) Act governs these borrowings. The 2020 COVID-19 pandemic led to increased borrowing limits for states to manage the economic impact.
**4. Financial Devolution: The State Finance Commissions are set up to recommend the distribution of local body finances, ensuring decentralized financial governance.
Conclusion: The financial relationship between the Centre and states involves revenue sharing, grants, borrowing powers, and devolution of funds, aiming to ensure balanced regional development and effective governance.
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