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In 2015, the 14th Finance Commission’s award represented a bonanza for the state governments. The report led Prime Minister Narendra Modi to make ‘’cooperative federalism’’ a plinth on which to rest centre-state financial relations: because the share of states in the divisible tax pool was raised from 32 to 42 per cent.
But simultaneously, another trend is visible. This is the tendency of the central government to levy cess and surcharges — two financial instruments that preclude sharing the proceeds of these two taxes with the state governments. As the data suggest, money raised from levying cess and surcharge has been on an upward trajectory since the National Democratic Alliance (NDA) government came to power in 2014. It is only a matter of time before states begin complaining that the spirit of cooperative federalism is being undermined.
Note: States share in the divisible tax pool was raised from 32 per cent to 42 per cent in 2015-16 based on the recommendations of the 14th Finance Commission
Financial equity between the Centre and the states was a matter mooted by Modi when he was chief minister of Gujarat. Now ,as he presides over the Centre, chief ministers are citing the same concerns. Currently, the most vociferous is Andhra Pradesh, which feels it should get some protection as it is a new state; and West Bengal, which believes the Centre is discriminating against it because it is ruled by an opposition party.
How this will pan out is not clear. But the Assam agitation of the 1980s was spawned entirely from the discourse that the Centre was practicing neo-colonial policies by denying Assam adequate oil royalties. Always on the look-out for new issues, the politics of cess-surcharges needs to be tracked.
Data complied by Ishan Bakshi; Text: Aditi Phadnis