{"id":30297,"date":"2024-10-01T17:09:02","date_gmt":"2024-10-01T11:39:02","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=30297"},"modified":"2024-10-01T18:07:57","modified_gmt":"2024-10-01T12:37:57","slug":"disparities-in-intra-state-fund-transfers","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/01-10-2024\/disparities-in-intra-state-fund-transfers","title":{"rendered":"Disparities in Intra-State Fund Transfers"},"content":{"rendered":"\n<p><strong>Syllabus: GS2\/Governance, Fiscal Federalism<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Given the rising levels of inequality and disparity among the States, it is important the <strong>16th Finance Commission<\/strong> gives <strong>intra-State disparities as much importance as <\/strong><a href=\"https:\/\/www.nextias.com\/ca\/editorial-analysis\/06-09-2024\/vertical-fiscal-imbalance-in-federal-relations\"><strong>inter-State disparities.<\/strong><\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Understanding Regional Disparities in Finance Commission Devolutions<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>Finance Commission<\/strong> in India plays a crucial role in distributing financial resources between the central government and the states. Its recommendations impact state finances, development, and governance.&nbsp;<\/li>\n\n\n\n<li>One critical aspect it grapples with is the balance between equity and efficiency.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Intra-State Disparities<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>While inter-state disparities have received significant attention, <strong>disparities within states \u2014 often referred to as intra-state disparities<\/strong>\u2014are equally important. These disparities can manifest in various ways, such as <strong>differences in income, infrastructure, and access to public services.<\/strong><\/li>\n\n\n\n<li>It extends to <strong>institutional capacities, healthcare facilities, education, and more.<\/strong> As a result, a development-disparity paradigm emerges, leaving certain regions lagging behind.<\/li>\n\n\n\n<li><strong>Uneven Landscape: <\/strong>Within a state, there\u2019s often a stark asymmetry between the capital city and its peripheral districts. For example, <strong>Bangalore for Karnataka<\/strong> and <strong>Mumbai in Maharashtra<\/strong> etc.\n<ul class=\"wp-block-list\">\n<li>The capital tends to hog the lion\u2019s share of government expenditure, while the other districts remain comparatively neglected.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>These <strong>intra-state disparities<\/strong> can have <strong>far-reaching consequences<\/strong> for development, social harmony, and overall well-being.<\/li>\n\n\n\n<li>Addressing them becomes politically crucial, especially given the rise of neoliberalism and the institutionalisation of fiscal discipline.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Consequences<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Neglected districts breed resentment. When people feel left behind, their grievances find expression \u2014 sometimes in the form of violence.&nbsp;<\/li>\n\n\n\n<li>Districts lying along <strong>India\u2019s red corridor, <\/strong>spanning states like <strong>Bihar, Jharkhand, Chhattisgarh, and Odisha are affected by Left-wing extremism (LWE).<\/strong><\/li>\n\n\n\n<li>These districts constitute the bottom rung of our developmental pyramid. Their sense of neglect, whether real or perceived, has <strong>fueled Maoist insurgency.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Neglected Districts<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>An earlier study by the <strong>12th Finance Commission<\/strong> highlighted shocking disparities in government expenditure across five Hindi-belt states and West Bengal.&nbsp;<\/li>\n\n\n\n<li>For instance, the per capita health expenditure in Arwal district was a mere \u20b914, while in Patna district, it stood at \u20b9927. Similar disparities existed across other states as well.&nbsp;<\/li>\n\n\n\n<li>Unfortunately, without effective equalisation measures, these disparities persist.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>Finance Commission<\/strong><br>&#8211; It is a Constitutionally mandated body that is at the centre of <strong>Fiscal Federalism.<\/strong> It is <strong>constituted by the President of India<\/strong> under <strong>Article 280 of the Constitution.<\/strong><br>&#8211; The Constitution requires a Finance Commission (FC) to be<strong> set up every five years, <\/strong>and the<strong> 1st Finance Commission<\/strong> was constituted vide Presidential Order under the <strong>chairmanship of Shri K.C. Neogy<\/strong> on 6th April 1952.<br>&#8211; The <strong>15th Finance Commission<\/strong>\u2019s mandate was extended by a year till 2025-26, breaking the cycle.&nbsp;<br><strong>15th Finance Commission<\/strong><br>&#8211; It was constituted <strong>in 2017 <\/strong>under the <strong>chairmanship of N K Singh<\/strong> against the backdrop of the abolition of the Planning Commission (as also of the distinction between Plan and non-Plan expenditure) and the introduction of the Goods and Services Tax (GST), which has fundamentally redefined federal fiscal relations.<br>&#8211; The <strong>Terms of Reference (ToR)<\/strong> of the current Commission have some distinctive features, including recommending monitorable performance criteria for important national flagship programmes and examining the possibility of setting up permanent non-lapsable funding for India\u2019s defence needs.<br><strong>16th Finance Commission<\/strong><br>&#8211; It was constituted by the Government of India, with the approval of the President of India, in pursuance to <strong>Article 280(1) of the Constitution, under the Chairmanship of Dr. Arvind Panagariya.<\/strong><br>&#8211; It focuses on <strong>devolution of the consolidated fund to states and local bodies.<\/strong><br>&#8211; Its recommendations will cover a period of <strong>five years starting from April 1, 2026.<\/strong><br>&#8211; <strong>Grants-in-Aid Principles:<\/strong> Define principles governing grants-in-aid of State revenues from the Consolidated Fund of India.<br>&#8211; Specify sums to be granted to States under <strong>Article 275<\/strong>, excluding purposes specified in provisos to <strong>clause (1) of that article.<\/strong><br>&#8211; <strong>Augmentation of State Consolidated Fund:<\/strong> Recommend measures to enhance the Consolidated Fund of a State.<br>1. It aims <strong>to supplement resources for Panchayats and Municipalities<\/strong> within the State, based on recommendations from the respective State Finance Commissions.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Role of Finance Commission<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It plays a crucial role in resource allocation. Traditionally, the FC has followed principles of equity, equalisation, and efficiency.&nbsp;<\/li>\n\n\n\n<li>When determining the inter-se share of individual states, equalisation\u2014aiming to address inter-state disparities \u2014 has been a dominant factor.&nbsp;<\/li>\n\n\n\n<li>The income distance criterion, which considers how far a state\u2019s per capita income lags behind the highest-per-capita income state, guides these transfers. But this approach doesn\u2019t account for intra-state disparities.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Equity vs. Efficiency<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The tension between <strong>equity (fairness) and efficiency (resource optimisation)<\/strong> lies at the heart of Finance Commission deliberations.&nbsp;<\/li>\n\n\n\n<li>Successive Finance Commissions <strong>need to trade-off both equity and efficiency<\/strong> in a system that prioritises resource management efficiency over social justice.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Norm-Based Equalisation<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Over the years, the concept of \u2018equalisation\u2019 has gained prominence. The objective is to equalise basic services across states at an average level.&nbsp;<\/li>\n\n\n\n<li>The <strong>12th Finance Commission, <\/strong>for instance, <strong>aimed to achieve both equity and efficiency <\/strong>within a framework of fiscal consolidation.&nbsp;<\/li>\n\n\n\n<li>However, critics argue that norm-based approaches sometimes fail to address regional disparities effectively.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Rural and Urban Local Bodies<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In the <strong>three-tier system<\/strong> of governance in India, the <strong>weakest link<\/strong> has always been the <strong>last tier of the Rural and Urban Local Bodies<\/strong>.&nbsp;<\/li>\n\n\n\n<li>There are <strong>about 250,000 and 5,000<\/strong> <strong>Rural and Urban Local Bodies respectively<\/strong> in India, which are institutions of political participation and governance at the grassroots level.<\/li>\n\n\n\n<li>The <strong>73rd and 74th Constitutional Amendments<\/strong> legitimise their authority and mandated the constitution of the <strong>State Finance Commission (SFC) <\/strong>by every State to recommend devolution of State resources to the local bodies,<strong> just as the Union Finance Commision<\/strong> recommends devolution of Central resources to the States.\n<ul class=\"wp-block-list\">\n<li>However, these local bodies are beset with many structural weaknesses due to lack of capacity, skill and resources.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Most States have now constituted their SFCs, but in the <strong>absence of relevant data on income<\/strong> <strong>and other backwardness parameters<\/strong>, there is <strong>no equalisation criteria <\/strong>in the transfers recommended by them.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Forward: A Call for Intra-State Equity<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Given the rising levels of inequality and disparity, it\u2019s high time that intra-state disparities receive as much attention as their inter-state counterparts.\n<ul class=\"wp-block-list\">\n<li>The 16th Finance Commission should consider mechanisms to address these gaps within states.&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>It needs to consider allocating resources <strong>not just based on income distance<\/strong> but also with an eye toward <strong>levelling the playing field within states.<\/strong><\/li>\n\n\n\n<li>Understanding and addressing both inter-state and intra-state disparities are essential for effective finance commission devolutions.&nbsp;<\/li>\n\n\n\n<li>Balancing equity and efficiency remains a delicate task\u2014one that requires thoughtful policy design and a keen awareness of regional nuances.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Daily Mains Practice Question<\/strong><br><strong>[Q]<\/strong> How does the increasing disparity in intra-state fund transfers in India impact regional development and social equity? Analyse the role of the Finance Commision of India to address this issue?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.thehindubusinessline.com\/opinion\/glaring-disparities-in-intra-state-fund-transfers\/article68702560.ece\" target=\"_blank\" rel=\"noopener\">Source: BL<\/a><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2024\/10\/Daily-Editorial-Analysis-1-10-2024.pdf\">Download PDF<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Given the rising levels of inequality and disparity among the States, it is important the 16th Finance Commission gives intra-State disparities as much importance as inter-State disparities.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-30297","post","type-post","status-publish","format-standard","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30297","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=30297"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30297\/revisions"}],"predecessor-version":[{"id":30301,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30297\/revisions\/30301"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=30297"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=30297"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=30297"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}