The Erosion of Fiscal Federalism: Why Tax Devolution Requires Constitutional Reinforcement
As union surcharges and cesses increasingly circumvent the divisible tax pool, states are forced into borrowing distress. The constitutional covenant between Centre and States demands urgent statutory recalibration before the next Finance Commission.
When the Constituent Assembly framed Article 270, the architectural postulate was unambiguous: the Union would act as an equitable collector of revenues, disbursing the predominant corpus back to the federating States whose proximity to healthcare, policing, and municipal welfare placed upon them the heaviest social mandates. Over the past decade, that delicate constitutional compact has suffered sustained structural attrition.
By methodically redirecting levies through specific cesses and non-divisible surcharges, the divisible pool shared with the states has contracted in real proportional terms, even as headline collections proclaim historic highs. When fiscal federalism is hollowed out, cooperative federalism becomes merely rhetorical.
- 1.Statutory Cap on Non-Divisible Cesses: Parliament must introduce a constitutional amendment capping Union surcharges at no more than 5% of total gross tax receipts.
- 2.16th Finance Commission Devolution Floor: The baseline horizontal devolution quota must be permanently fortified at 42%, index-linked to state social expenditure.
- 3.Autonomous Fiscal Council: Establish an independent statutory watchdog to audit revenue-sharing models and curb covert off-budget centralization.
