Inter-Governmental Fiscal Transfers

IGFTs in India are primarily aimed at promoting balanced regional development by addressing disparities in economic growth and infrastructure across different states.

User charges are not considered IGFTs as they are fees charged by government entities for specific services or facilities provided to individuals or businesses.

Article 280 of the Indian Constitution empowers the central government to provide grants-in-aid to states for various purposes, including economic development, social welfare, and disaster relief.

The Finance Commission is a constitutional body responsible for recommending the distribution of tax revenues between the central government and states, as well as the principles governing grants-in-aid to states.

Political considerations are not explicitly taken into account by the Finance Commission when determining the allocation of IGFTs. The Commission is expected to make recommendations based on objective criteria and principles.

Tax sharing in IGFTs aims to ensure that tax revenues are distributed equitably between the central government and states, considering their respective needs and responsibilities.

Customs duty is not shared between the center and states in India. It is entirely collected and retained by the central government.

The share of each state in the divisible pool of taxes is determined based on a formula that considers both population size and per capita income.

Plan grants are provided to states for specific purposes and projects that are included in the central government's Five-Year Plans.

Performance-based grants are provided to states to reward them for achieving specific targets and outcomes in areas such as education, health, and poverty reduction.

Adequate fiscal resources to meet the growing needs of states is not a challenge associated with IGFTs in India. The central government has been consistently increasing the allocation of IGFTs to states over the years.

The CAG is responsible for auditing the utilization of IGFTs by state governments to ensure that funds are used for the intended purposes and in accordance with the prescribed guidelines.

Reducing the number of centrally sponsored schemes was not a recommendation of the Fourteenth Finance Commission. The Commission focused on reforming the existing IGFT system rather than reducing the number of centrally sponsored schemes.

The GST has simplified the tax structure, increased revenue collection, and led to a more equitable distribution of tax revenues between the center and states, making it a significant reform in the context of IGFTs.

Political interference, lack of transparency, duplication of schemes, and inadequate fiscal resources are key challenges that need to be addressed to improve the effectiveness of IGFTs in India.