Why is it in the news?
- Karnataka recently approached the SC seeking relief over fund disbursement for drought management, while Tamil Nadu previously did the same for cyclone relief and flood management.
More about the news
- States currently finance only 58% of their revenue expenditure from their own revenue sources. The debt-GDP ratio of states stands at 27.5% as of March 2023.
- Several factors contribute to states’ dependency on the central government, including the cessation of GST compensation, lower revenue from State Goods and Services Tax (SGST) compared to pre-GST tax revenues, and the increased use of cesses and surcharges by the Centre. Additionally, measures like farm loan waivers strain state finances.
- Efforts have been made to improve state finances, including the Scheme for Special Assistance to States for Capital Expenditure, which provides interest-free loans to states.
| · The 15th Finance Commission recommended performance-based additional borrowing space for states in the power sector. |
- To address these challenges, fostering a business-friendly tax administration to enhance revenue collection is crucial. Revision of user charges on essential services like electricity and water can also boost non-tax revenue.
| Constitutional Provisions related to States’ finances · Article 275: Parliament may by law provide to certain states, grants-in-aid charged on Consolidated Fund of India. · Article 282: Enables Union (and states) to make discretionary grants, for any ‘public purpose’. · Article 293: Confers power on States to borrow money within limits prescribed by State legislature.
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