India Webinar Series Part 3: The Changing Fiscal Federal Architecture of India

The Government of India Act 1919 laid down the revenue heads between union and state. Later, the Government of India Act 1935 gave headings more concrete contents, and finally the 7th schedule of Indian constitution specified the subjects under state and central government’s authority and power. Over the years constitutional amendments have complicated the allocation of subjects under 7th schedule. Overlap in subject allocation and restructuring of tax collection and devolution has made fiscal management a demanding task for both centre and states. More recently, fiscal architecture of states has been overwhelmed due to unprecedented pandemic and its impact on tax collection. The XVth finance commission in its recently submitted report has laid emphasis on the role of the states’ finance commission with reference to the 73rd and 74th amendments of the Indian constitution.

States have highlighted their reduced flexibility in tax allocation and its collection after GST implementation. Furthermore, centrally sponsored schemes and central sector schemes have seen addition, both in quantity and in their respective budgetary allocations, in the 2021 financial year. There has been ever increasing competition between states and centre especially due to one-party dominance at the centre. Though a ministry of cooperation has been constituted at the central level, there is no financial institution which can address anxieties of the states. On one hand the divisible pool has been increased from 32 to 41 percent, on the other hand surcharges and cess have been at an all time high in the centre’s tax collection program. The centre is trying to reform GST architecture in an effort to make GST what it was intended to be for creating a win-win situation for all the states.

In this context, this seminar will discuss the changes occurring in the fiscal architecture of states’ finances to examine how various states are grappling with fiscal challenges and which practices are best to look upon. Discussions will assess the competence of states’ fiscal planning and architecture in the constitutional set up to look at the opportunities and challenges lying ahead for states in India.

Dr. Vishwa Nath Alok (V.N Alok) is an Associate Professor of Public Finance at the Indian Institute of Public Administration (IIPA). He is a member of the 5th Delhi Finance Commission and has contributed to many more Union and State Finance Commissions since 1995. Dr. Alok is known for conceptualizing the ‘devolution index’. He has worked with constitutional bodies such as the 15th Finance Commission, and organizations such as the World Bank to lead research studies on fiscal federalism, fiscal decentralization, development, and finance. Moreover, Dr. Alok has authored and co-authored books on finance and federalism in India including Panchayats in India: Measuring Devolution by States and Fiscal Decentralization in India: An Outcome Mapping og State Finance Commissions.

Subhash Chandra Garg is an Economic Policy Strategist and Author. He has written articles and papers on economic policy in India, such as Transformation of Central Grants to States: Growing Conditionality and Bypassing State Budgets. Mr. Garg has worked in the Indian Administrative Service (IAS) as the Finance secretary in the Department of Economic Affairs. He has also worked with the World Bank as the Executive Director for India, Bangladesh, Bhutan and Sri Lanka, and with many of their member organizations such as IDA, IBRD, IFC and MIGA.


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