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Focus: GS-III Indian Economy and Economic Development, Prelims

Why in news?

  • The government’s total receipts during the April 2019-January 2020 period of the current fiscal stood at Rupees 12.82 lakh crore, while total expenditure for the same period was Rupees 22.68 lakh crore.
  • Tax revenue stood at Rupees 9,98,037 crore, while non-tax revenue stood at Rupees 2,52,083 crore.
  • 5,30,735 crore has been transferred to State governments as ‘Devolution of Share of Taxes’ by the Centre in the period under consideration India’s fiscal deficit in the first 10 months through January stood at Rupees 9.85 lakh crore or 128.5% of the revised budgeted target for the current fiscal year, according to government data released on 28th February.

Devolution of Share of Taxes

  • The Indian federal system allows for the division of power and responsibilities between the centre and states.
  • Correspondingly, the taxation powers are also broadly divided between the centre and states.
  • The centre collects majority of the tax revenue as it enjoys scale economies in the collection of certain taxes.  States have the responsibility of delivering public goods in their areas due to their proximity to local issues and needs.
  • A Constitutional Amendment in 2000 allowed for all central taxes to be shared with states.
  • The share in central taxes is distributed among states based on a formula.   Previous Finance Commissions have considered various factors to determine the criteria such as the population and income needs of states, their area and infrastructure, etc.  Further, the weightage assigned to each criterion has varied with each Finance Commission.

What is Fiscal Deficit?

  • The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
  • It is an indication of the total borrowings needed by the government.
  • While calculating the total revenue, borrowings are not included.
February 2024