The Impact of Finance Commission's Fiscal Transfers to Southern States

Abstract

The present study attempts to analyze the Finance Commission's fiscal transfers to the Southern States in India. In this context the study aims to analyze the various issues of Finance Commissions Fiscal transfers to southern states in India viz. Tamil Nadu, Karnataka, Kerala and Andhra Pradesh. This study highlights the emerging controversies among states and the financial transfer to the states. The need for the study is important, especially in the context of present controversies regarding financial transfer between the states will also be examined in the present study. The Government act of 1935 divides the functions and financial powers of the Government into Central and States spheres together with the concurrent areas. The Finance Commission is a salient feature of the India's constitution. It is an advisory body which deals with the transfer of resources from the center to the states. The Finance Commission is established by the President of India for every five years to review the finances of the Union and States and recommend devolution of taxes and grants-in-aid of revenues to the states. Income tax sharing between the Centre and the states underwent a fundamental transformation with the Constitution in 2000. The net process of income tax is shared with States on a mandatory basis. The commission made recommendations regarding the combined share of states out of the "divisible pool" of the net income tax proceeds and the proportionate share of each indivisible state within the combined share of all States. The President of India has the discretion to refer the question of sharing of excise duties with the states to the commission. In effect, this matter was always included in its terms of references. Here, again the Finance Commission recommended the sharing of net proceeds of union excise duties between the Centre and States and the distribution of their collective share between individual States