Cooperative Federalism: Implications for Social Sector Expenditure in India

Abstract

The centre-state relations in India have endured drastic changes during the last two decades of economic reforms. The economy moved away from a centralized federalism to that of cooperative and competitive federalism. The decision of the Union government to accept the recommendations of the 14th Finance Commission (FFC) (2015) to increase tax devolution to 42% of the sharable pool of taxes has increased the flow of untied resources to states is a major boost to the federal autonomy in the country. During the period 2015–2020, the untied statutory transfers would be more than 70% of the aggregate resource transfers from the Union to States and will add the autonomy of states in the allocation of resources. As per the Constitution of India, major taxes are collected by the Union government from the point of efficiency and equity and the proceeds of the same are shared with the state governments. On the other hand, even though major social services like education and health care are on the concurrent list of the Constitution, major expenditure responsibilities are with the state governments.