March 08, 2015
Abstract: The new federalism recommended by the 14th Finance Commission — greater devolution of public spending on development and welfare to state/ local levels while taxing all mobile goods and services and factors of production at the national level (GST) — can potentially be a highly beneficial and efficient model for development. However, the success of this new model hinges on several conditions. At the state level, capacity to make best use of the enhanced resource base and expenditure autonomy needs to develop. The NITI Aayog can play a critical role in knowledge building and platform development as there is a wide disparity in institutional capacity across states. At the centre, a reorientation of roles and responsibilities of ministries and other institutions is required. The role of central ministries should be less about spending money and more about ensuring that money is spent effectively by states.
Keywords: taxation; subsidies; revenue; intergovernmental relations; federalism