(PYQ Mock Answer Polity Governance/Public Administration) 73rd Ammendment

Q. The 73rd amendment may accentuate fiscal indiscipline by establishing between states & local government a system of transfers, similar to the one in place between central & state govt. (World Bank) Comment. (2013)

Answer:

Given the asymmetry in powers in collection of taxes between the centre and the states, the constitution establishes the Finance Commission (A.280) to ensure devolution of financial resources to the states. This transfer of revenues from the centre to the state has resulted in fiscal profligacy among the state governments, the following points substantiate the same:

1. Aid curse: This “free” transfer of resources from the centre to the states, made the states perennially dependant on the centre for aid and financial resources, this attitude has resulted in the states turning a blind eye to strengthening their own sources of revenue and increasing their tax efforts. 
2. Election freebies and unnecessary subsidies: This revenue stream from the centre to the states has enabled the states to be more extravagant in their expenditure, this tendency can be seen in the distribution election freebies (like TVs, Laptops), unnecessary subsidies and farm loan waivers. 
3. Decreased tax efforts: The states are happy with the steady flow of revenue from the centre to the state through the FC recommendations, hence they are not improving their tax efforts to increase revenue collection. The citizens are not burned by taxation hence they tend to be happy with the government in power. Yet, another populistic measure. 

The 73rd amendment has replicated this system of devolution to the states and local self governments as well by setting up the State Finance Commission (SFC). The SFC is given the responsibility of giving recommendations regarding transfer of resources from the state to the local self governments. This stream of revenue is being misused the same way the states have misused the money devolved from the centre. In simple words, the problem of Aid curse, Election freebies and decreased tax efforts is being witnessed in utilisation of funds among the local self governments as well.

Note: There has been a trend of previous year Public administration questions related to Indian Administration appearing in the GS paper II of mains exam. The question can be asked in polity governance paper as well. 

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