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SC concern about states approaching court over fund disbursal by Centre


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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