Centre should share surcharge collections with States: Bhatti

The demand by Mr. Bhatti Vikramarka for the Centre to share surcharge collections with States, enhance fiscal space, and provide greater devolution of resources is a recurring theme in India's fiscal federalism discourse. This issue lies at the heart of Centre-State financial relations, a fundamental aspect of India's federal structure as enshrined in the Constitution.

**Background Context and Evolution of Fiscal Federalism:**

India operates as a quasi-federal state, balancing a strong central government with significant powers vested in the states. Fiscal federalism refers to the division of financial powers and responsibilities between different levels of government. Since independence, the distribution of revenue sources has largely favored the Union government, while states are tasked with implementing many welfare and development programs, leading to a 'vertical fiscal imbalance.' To address this, the Indian Constitution mandates the establishment of a Finance Commission every five years (under Article 280) to recommend the distribution of net tax proceeds between the Union and the States (vertical devolution) and among the States themselves (horizontal devolution). Over the decades, the share of states in the divisible pool of central taxes has generally increased, yet states continue to advocate for more financial autonomy and resources.

**What Happened: The Specific Demands**

Mr. Bhatti Vikramarka's demands highlight critical pain points for states. Firstly, the call for sharing surcharge collections is particularly significant. Surcharges are additional levies on existing taxes, imposed by the Union government. Crucially, Article 271 of the Indian Constitution explicitly states that surcharges on certain duties and taxes levied for Union purposes are *not* to be distributed to the states. This provision allows the Centre to raise additional revenue without sharing it with states, providing it with a significant fiscal advantage. Secondly, the demand for enhanced fiscal space and greater devolution of resources is a broader plea for increasing the states' share in the central tax pool and reducing their dependence on central grants. Lastly, the request for early sanction of major infrastructure projects underscores the states' need for timely central support and approvals to drive development and economic growth within their territories.

**Key Stakeholders Involved:**

* **State Governments (and their representatives like Mr. Bhatti Vikramarka):** They are the primary advocates for increased fiscal resources. States bear the responsibility for public services like health, education, law and order, and infrastructure, all of which require substantial funding. They argue that greater financial autonomy would allow them to better tailor policies to local needs and foster regional development.

* **Union Government (Ministry of Finance, NITI Aayog):** The Centre's role is to manage the national economy, ensure fiscal stability, fund national priorities, and maintain a balance across states. While recognizing the need for state development, the Centre often faces its own fiscal constraints and national commitments, making it cautious about further reducing its share of revenue.

* **Finance Commission:** This constitutional body acts as an independent arbiter, recommending the principles and quantum of financial transfers from the Centre to the States. Its recommendations are crucial for shaping India's fiscal federal landscape.

**Significance for India:**

This debate is vital for India's economic and political stability. Economically, greater state fiscal autonomy can lead to more efficient resource allocation, as states are often better positioned to identify and address local needs. It can also foster competitive federalism, encouraging states to improve governance and attract investment. However, unchecked fiscal freedom could also lead to regional disparities or unsustainable state finances. Politically, the issue impacts Centre-State relations, which are a cornerstone of India's federal democracy. Continuous friction over financial resources can strain cooperative federalism, potentially leading to political instability or undermining national unity. Socially, the availability of funds at the state level directly impacts the delivery of essential services and welfare schemes, affecting the quality of life for millions of citizens.

**Constitutional Provisions and Broader Themes:**

Beyond Article 271, other constitutional articles are central to this discussion:

* **Article 268:** Duties levied by the Union but collected and appropriated by the States.

* **Article 269:** Taxes levied and collected by the Union but assigned to the States.

* **Article 270:** Taxes levied and collected by the Union and distributed between the Union and the States (the divisible pool).

* **Article 275:** Grants-in-aid from the Union to certain States.

* **Article 280:** Constitution of the Finance Commission.

The broader themes here include cooperative and competitive federalism, public finance management, fiscal responsibility, and the balance of power within India's federal structure. The introduction of the Goods and Services Tax (GST) via the 101st Constitutional Amendment Act, 2016, significantly altered the indirect tax regime, bringing many state taxes under a unified national framework and establishing the GST Council (Article 279A) as a new institution for cooperative fiscal federalism. While GST streamlined taxes, it also centralized some tax powers, leading to new debates over state revenue autonomy, especially concerning compensation for revenue shortfalls.

**Future Implications:**

The ongoing demand for sharing surcharges and cesses, along with greater devolution, suggests that future Finance Commissions will face increasing pressure to address these concerns. While amending Article 271 to include surcharges in the divisible pool is a difficult constitutional proposition, other mechanisms could be explored. The Centre might consider increasing the overall share of states in the divisible pool, providing more untied grants, or creating specific funds for infrastructure projects that align with state priorities. The debate will likely continue to shape the recommendations of subsequent Finance Commissions and influence policy decisions regarding public finance, ultimately determining the extent of fiscal autonomy and development trajectory of India's states in the coming decades. A robust and equitable fiscal federal framework is essential for India's sustained growth and for strengthening its democratic institutions.