Towards India’s New Fiscal Federalism

Abstract

This paper raises three challenges in India’s development strategy: vertical imbalance, horizontal imbalance and development imbalance. To address these issues, it argues that there is a need for relooking at the existing fiscal federalism architecture in India. It proposes four pillars for India’s new fiscal federalism, which is currently having only one pillar in the form of Union Finance Commission. As a second pillar, the paper argues that there is a need for an institution, say New NITI Aayog that have financial powers for allocating for developmental schemes, to address the issue of increasing regional and sub-regional imbalances in India. Further, the paper argues for having constitutional arrangements for sharing the GST proceeds with the third Tier, which forms the third pillar. And lastly, it points towards implementation of ‘flawless GST’ as the fourth pillar of new fiscal federalism.