Financial Devolution Among States: Explained | UPSC | Drishti IAS

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Recently various Opposition-ruled States especially from south India have claimed that they have not been receiving their fair share as per the present scheme of financial devolution. They have raised issues about their less than proportionate share of receipt in tax revenue when compared to their contribution towards tax collection. Article 270 of the Constitution provides for the scheme of distribution of net tax proceeds collected by the Union government between the Centre and the States. The taxes that are shared between the Centre and the States include corporation tax, personal income tax, Central GST, the Centre’s share of the Integrated Goods and Services Tax (IGST) etc. This division is based on the recommendation of the Finance Commission (FC) that is constituted every five years as per the terms of Article 280. Apart from the share of taxes, States are also provided grants-in-aid as per the recommendation of the FC. The divisible pool, however, does not include cess and surcharge that are levied by the Centre. What is the role of the Finance Commission? What is the basis for allocation of tax revenue to various States? Has the percentage share of the divisible pool of taxes been reducing for southern States? What are the potential solutions? We discussed all the aspects here in this video.

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