Abstract
To understand the rationality of debate on fiscal federalism aroused under the Terms of Reference (ToR) of the Fifteenth Finance Commission, the historical perspective of the Finance Commission (FC) and their transition along with the dynamics of other federal institutions must be explained. The authors held the apex positions in monetary and fiscal institutions of the Indian federation. Therefore, the thesis of the book is practice-based. It is written in a simplistic manner as if communicating with the readers. The book is a single source reference covering all institutions and channels of federal transfers, although the authors accepted the omission of implicit transfers, which cause certain fiscal imbalances in federal system. The art of federalism lies in designing institutions with appropriate assignment of powers and functions among different orders of government and rules to regulate their relationship, especially in the fiscal arena that can strike the right balance among different objectives and resolve tensions (Bagchi, 2001). This book addresses correctly on these matters. However, comparison of Indian fiscal federalism with other federal nations is missing. The book Fifty Years of Fiscal Federalism: Finance Commissions of India written by the Twelfth Finance Commission has critically examined the role of FC in Indian fiscal federalism from the First to Twelfth Finance Commission, and this book successfully provides further critical analysis until date. The book has 16 chapters apart from an ‘Introduction’ and ‘Afterword’. It gives primary focus to the different FCs and their roles, changes and contribution in building centralization and decentralization. The FC occupies around 85% space of this book, while the rest of the book describes about the Planning Commission, the NITI Aayog and the GST Council. As most of the federal transfers (73%) are routed through the FC, so 85% space is well-justified.
The introductory chapter, as usual, provides a brief of the book. Chapter 1 details pre-Independence discussion on genesis of the fiscal federalism in a very concise manner. Further, the origin and transition of fiscal federalism in India is discussed with expert evaluation through the lens of progressivity, role, rights and direction of different institutions related to centre–state affairs, also on concurrent matters under Chapter 2. The role and approaches of FC is deliberated under Chapters 3 and 4. It includes discussion on the tussle between the FC and the Planning Commission, discretionary versus formula-based transfers. The way of explanation done under the section of ‘Addition to Core Matters’ of the FC is tempting, as it critically analysed commission-wise additional matters in the ToR or otherwise. The authors successfully described the legality of these additional changes, approaches of the FC—right from the First to the Fifteenth Finance Commission—and action on recommendations. The next two chapters (Chapters 5 and 6) are well organised and phase-wise distribution of the FC provides a clear understanding about the Indian fiscal federalism through vertical and horizontal distribution patterns. These sections provide all the information about vertical and horizontal distributions at one place, including criteria (need, performance/efficiency, equity and fiscal disability-based) and their weights. The authors also highlighted consistent gainer and loser states in terms of FC transfers. Chapter 7 explains the nature and wisdom of grants-in-aid and also the comparison between the FC and the Planning Commission for its transfers. The Planning Commission was throughout dominating over the FC, from the Second to the Thirteenth Finance Commission. The practice, that is, assumptions, forecast, etc., which works behind the recommendations of any FC is given under Chapter 8. Another characteristic of the Indian federation is the third-tier government. The authors have covered its evolution and constitutional provisions. In addition, the assessment of transfer through FC increases the value of Chapter 9; however, they also came up with certain issues with the transfers. The highly debated topic, that is, ‘GST’ has been covered in Chapter 10, and the role and structure of its council have been discussed briefly. It is important to note here that administrative responsibility of tax collectors and their structure is missing, and that this is more important for a cohesive fiscal federalism. Chapter 11 perfectly deals with the asymmetric federalism. The complexity of special category states can be understood in a single reading with evidence of Andhra Pradesh episode and discourse around it. In the next two chapters (12 and 13) devoted to the Planning Commission and NITI Aayog, the authors have successfully evaluated the assigned role of the Planning Commission and their closing. The role of NITI Aayog is still not clear in this book, and, hence, the authors have suggested ‘NITI Aayog has an opportunity and, indeed, an obligation to contribute to fiscal responsibility in both the Union and State Governments consistent with developmental priorities and sound fiscal federal relations’ (p. 217). The other mode of arrangement of finances through debt is under control of the Union. The book rightly portrays the dynamics of public debt in Chapter 14. The overall game of fiscal federalism can be easily understood in Chapter 15. The statistics solidifies the progressivity of federal transfers routed through the FC and regressivity of other institutions. The last chapter appraises the ToR of the Fifteenth Finance Commission and presents a critical review along with hints of some ways for the Fifteenth Finance Commission. It addresses the debate on using of 2011 population.
In the above pretext, this work is proved to be useful for policymakers, government, tax practitioners, academicians and people, in general, who are interested in fiscal federalism. The latest data have been used for all the selected indicators including a long-term perspective. Apart from historical perspective, the authors perfectly deal with the book’s objectives. This study comprehensively analysed the recent changes registered during the last two decades, especially after 2014. These fiscal architectural changes were higher vertical devolution recommended by the Fourteenth Finance Commission, replacement of the Planning Commission by NITI Aayog, implementation of GST, controversy around the ToR of the Fifteenth Finance Commission, etc. The way forward increases its utility in the future. However, the book missed to cover the role of state FC and the administrative structure and complexity of GST collection. Overall, the critical analysis of the subject through the lens of politics, economics and public finance made this publication unique. This book will be extensively cited in the area of fiscal policy and fiscal federalism in India, and it will also become a reference to the international literatures.