Fiscal federalism refers to the financial relations between the units of governments in a federal government system. It deals with the division of governmental functions and financial relations among the levels of government. It is a major aspect of federal relations in a country.
In India, the constitutionally mandated body at the centre of fiscal federalism is the Finance Commission. Finance Commissions, in recent times, have played a crucial role in safeguarding the foundations of fiscal federalism. The Finance Commission gives its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves. The recommendations of the Fifteenth Finance Commission cover the five-year period commencing from 1st April 2020.
After decades, the fiscal agreement between the central government and the Indian states is facing radical changes. In an interview, Professor Chanchal Kumar Sharma explains how the Centre-State Financial Relations in India now have to change.
Dr. Chanchal Kumar Sharma is a Professor of Political Science at Central University of Haryana and Associate at the German Institute of Global and Area Studies (GIGA), Hamburg, since 2017. He critically engages with themes lying at the intersection of politics and economy in federal systems and has several high-quality research publications on such issues. He has co-edited a book on Indian Federalism, published by Routledge, U.K. and has co-edited special issues of prestigious journals such as India Review and Territory, Politics and Governance.
The conversation sheds light on the nature of federalism in India, coordination between the centre and the states, the recommendations of the XIV and XV Finance Commissions, fiscal consolidation at the central and state levels, centrally sponsored schemes in the health sector to fight the pandemic and some aspects of the Union Budget 2021.