Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.

Asymmetric fiscal federalism refers to the unequal distribution of fiscal powers and responsibilities among different levels of government within a federal system. Here are some key considerations in asymmetric fiscal federalism and its impact on intergovernmental financial relations in India:

Differential Revenue-raising Capacities: States in India vary widely in terms of their revenue-raising capacities due to differences in economic development, natural resource endowments, and population size. This leads to disparities in their ability to generate revenue independently, thereby necessitating redistributive mechanisms to ensure fiscal equity.
Fiscal Autonomy: Asymmetric fiscal federalism recognizes the need for states to have varying degrees of fiscal autonomy to address their unique socio-economic challenges. This autonomy allows states to design and implement fiscal policies tailored to their specific needs and priorities.
Intergovernmental Transfers: In India, intergovernmental transfers play a crucial role in balancing fiscal disparities among states. Mechanisms such as Finance Commission transfers, grants-in-aid, and centrally-sponsored schemes are used to redistribute resources from the central government to states based on criteria such as population, income levels, and developmental needs.
Debt Management: Asymmetric fiscal federalism also involves variations in states’ debt capacities and borrowing limits. While some states may have higher debt ceilings due to stronger fiscal positions, others may face constraints on borrowing, leading to disparities in their ability to finance development projects and infrastructure investments.
Expenditure Responsibilities: States bear the primary responsibility for delivering essential public services such as health, education, and infrastructure development. However, their capacity to fulfil these responsibilities may be influenced by factors such as fiscal constraints, administrative capacity, and externalities arising from national policies.
Coordination Challenges: Asymmetric fiscal federalism can pose coordination challenges between the central and state governments, particularly in areas such as tax policy, expenditure allocation, and debt management. Effective coordination mechanisms are essential to ensure coherence in fiscal policies and avoid conflicts of interest.

The asymmetric fiscal federalism recognizes the diverse needs and capacities of states within a federal system and emphasises the importance of flexibility, equity, and cooperation in intergovernmental financial relations to promote balanced regional development and socio-economic progress.

Source The Hindu

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