Revision summary
Union and State Lists assign major taxes; GST replaced many split indirect taxes. Article 270 and the Finance Commission fix the States’ share of the divisible pool. Article 275 grants-in-aid aid poorer States. Centrally sponsored schemes add tied funds that States co-finance. Article 293 borrowing needs Union consent when a State still owes the Centre.
Model answer
Introduction
Indian federal finance is a constitutional assignment of taxes, a shareable pool, and grants, not a bargain left only to annual politics. Description must cover Union and State lists, Finance Commission transfers, GST, and borrowing limits.
Body
Tax assignment
- The Union List holds customs, corporation tax, and residual Union levies; the State List holds alcohol excise, stamps on specified instruments, and several local-type taxes.
- Concurrent and residual design, plus Article 268–269 residual sharing, historically split some duties; GST subsumed many indirect taxes into a dual Centre–State levy.
Sharing and grants
- Article 270 and the Finance Commission recommend the States’ share of the divisible pool and grants-in-aid under Article 275.
- GST is levied by both, with a GST Council; compensation to States was a time-bound political add-on, not a permanent constitutional share.
- Centrally sponsored schemes add purpose-tied money that States co-finance, which is extra-constitutional in form but large in practice.
Borrowing and control
- Article 293 lets States borrow, but Union consent is needed if they still owe the Centre, which gives Delhi a lever.
- The Finance Commission and FRBM-type rules shape fiscal space more than any one budget speech.
Flow diagram
flowchart TD T[Tax lists] --> U[Union elastic taxes] T --> S[State own taxes] U --> FC[Finance Commission share] FC --> ST[State budgets] G[Grants and CSS] --> ST GST[Dual GST] --> ST
Conclusion
Centre–State financial relations rest on list-wise taxes, Finance Commission devolution and grants, dual GST, scheme funds, and controlled State borrowing. The Union’s larger elastic taxes make States structurally dependent even after statutory shares.
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