The Dynamics of Finance between the Centre and the State

Key Takeaways 

• The Finance Commission plays a crucial role in maintaining fairness and equity in resource allocation. India can become a stronger, more inclusive country by consistently improving and modifying its fund allocation methods.
• The Controller General of Accounts maintains a technically competent Management Accounting System for the Department of Expenditure, analyzing expenditures, income, borrowings, and fiscal indicators for the Union Government.
• The dynamics of fund allocation between the Centre and Indian states impact government performance and public services. Fiscal federalism is outlined in the Constitution, but implementation remains controversial. 

Introduction 

The government has a significant impact on every facet of the financial world. Government laws and policies have an impact on the economy as a whole and have an immediate effect on how financial institutions operate. In actuality, every firm and every person’s financial concerns are impacted by governmental laws and regulations. Governments control and have a variety of influences on all forms of finance. They include activities of the central bank, taxation, and requirements for accounting procedures.

India’s federal structure includes a complicated and dynamic system for allocating funds between the Centre and the States. At both the national and state levels, the allocation of financial resources is a key factor in determining the efficiency of governance and the provision of public services. 

A Brief Rundown

The Goods and Services Tax (GST) and the 101st Amendment to the Constitution of India have dramatically altered the central-state financial relationship in India. The Constitution’s Articles 268 to 280 describe the Centre’s and states’ bilateral financial ties. Union list taxes can be imposed by the Parliament, but state legislatures are the only ones with the power to enact State List taxes. 

The concurrent list includes taxes imposed by state legislatures as well as by Parliament, which has residuary taxing authority.

Controller General of Accounts (CGA)

The Finance Commission has been successful in bringing about progressive and dynamic reforms in the financial relationships between the centre and the states as time has gone on. Given the shifting dynamics of the states-centre financial relationship, unequal borrowing power distribution continues to be a problem and a serious concern that needs to be addressed.

The establishment and upkeep of a technically competent Management Accounting System is the responsibility of the Controller General of Accounts (CGA), who works in the Department of Expenditure under the Ministry of Finance. For the Union Government, the Office of CGA creates monthly and yearly analyses of expenditures, income, borrowings, and different fiscal indicators. According to Article 150 of the Constitution, the Comptroller and Auditor General of India recommends that the Annual Appropriation Accounts (Civil) and Union Finance Accounts be submitted to Parliament. A M.I.S. Report titled “Accounts at a Glance” is also prepared and sent to appropriate representatives in Parliament together with these materials.

Policies regarding accounting principles, form, and practise are created by the federal and state governments. They coordinate the implementation of Management Accounting Systems to maximise resource use, manage payments, receipts, and accounting in Central Civil Ministries/Departments, compile and submit monthly and annual accounts. The organisation oversees financial performance and upholds technical standards in Departmentalized Accounting offices. 

Fiscal revenue allocation

The allocation of tax income between the federal government and the states was altered by the 88th Amendment Act of 2003 and the 80th Amendment Act of 2000.

While the states are in responsible of tax collection, the Centre imposes taxes. (Articles 268-291) It includes a range of taxes and charges, such as-

• Bills of exchange, promissory notes, insurance policies, cheques, stock transfers, and other documents are subject to stamp duty.
• Any state’s internal taxes are collected and given to the state rather than the Consolidated Fund of India.
• Federal taxes that are imposed and distributed to the states (see Article 269) These taxes fall under this category:
• The sale or purchase of goods (other than newspapers) in the course of interstate commerce or trade was subject to a number of tariffs.
• Various taxes imposed on goods shipped during interstate trade or commerce
• The Consolidated Fund of India does not receive the net proceeds of any of these taxes.

The Interplay 

Taxes imposed and collected by the Centre but proportionately split between the Centre and the States (Article 270): All taxes and duties included in the Union List fall under this category, with the exception of the following:

Duties and taxes are covered under Articles 268, 269, and 269-A (as indicated above).

Taxes and duties are subject to an additional fee, as described in Article 271.

Any tax applied with a specific goal in mind. On the advice of the Finance Commission, the President. Surcharges on specific taxes and customs for central purposes, Article 271 

According to Articles 269 and 270 of the Constitution, the Parliament may impose the aforementioned surcharges on taxes and duties at any moment.

All of the proceeds from these surcharges go to the Centre. In other words, none of the levies are being paid by the states. The Goods and Services Tax (GST) does not apply to this fee. Alternatively stated, the GST. In other words, this fee will not apply to the GST.

State-imposed taxes: Such taxes fall totally beyond the purview of the governments. They are listed on the State List and there are 18 of them.

Conclusion

In conclusion, the complex and dynamic dynamics of cash allocation between the Centre and Indian states affect government performance and the delivery of public services. Although the Constitution explicitly calls for fiscal federalism, its implementation has been contested. 

The Finance Commission plays a key role in upholding fairness and equity in the distribution of resources from the federal government to the states. The federal government must balance decentralised decision-making with central planning while also taking into account the diverse demands and objectives of the states. 

The federal government and the states may work together for the benefit and prosperity of all residents in India by continually strengthening and reforming the existing status quo.