issue of special grants

 outcome of an election can determine the fiscal distribution of national resources to a State or States goes against the grain of fiscal federalism

Coalition politics is back at the Union level 

1 The Bharatiya Janata Party is dependent on the Janata Dal (United) of Bihar and the Telugu Desam Party of Andhra Pradesh for its parliamentary majority. 

2 This is in contrast to 2014 and 2019, when de facto single-party governments came to office. 

3 With single-party majority becoming a thing of the past, demand for 

• State-specific discretionary grants, 
• or ‘special packages’, are back with a bang in public discussion.

if a healthy federal structure is to be nurtured, 

• the fiscal boundaries, 
• principles of assignment of taxes, 
• and the basis for grants have to be transparent and objective.

 A federal setup 

not same in a country like

• linguistic, 
• cultural, and
•  economic diversity. 
• But issues of asymmetry should be addressed by means of constitutional provisions that have both transparency and stability.

States that have a special status 

The Constitution has provisions that address the issues of specific States, or States that have a special status 

These provisions are covered, for instance, in Articles 371A to H (Article 370 for the erstwhile State of Jammu and Kashmir, of course, is abrogated).

Purely discretionary

special packages are purely discretionary

1 They may be need-based

but the need is not the proximate reason for granting a special package, which is an additional grant under Article 282, which falls under ‘Miscellaneous Financial Provisions’. 

2 they are the result of the bargaining power of some State-level political parties that can tilt the scales of parliamentary majority.

outcome of an election and special grant method

1 outcome of an election can determine the fiscal distribution of national resources to a State or States goes against the grain of fiscal federalism (or, more correctly, of federal finance).

 2 Some States may be justified in their demands for funds, but allocation has to be through the mechanism of the Finance Commission. 

3 The Commission is constituted 

by the President every five years or earlier to make recommendations regarding the 

• distribution of a share of taxes collected by the Union to the States, 
• and how this is to be distributed among the States, as per Article 280; 
• 
  
• and disbursement of grants to States in need of assistance, as provided in Article 275. 
• 
  
• The 16th Finance Commission, which is already in existence, cannot be bypassed solely on account of partisan political exigencies.

Federal tendencies

In the recent past, some States raised concerns

about their share in the divisible pool of Union taxes facing a decline. 

Tax distribution is formula-based, and it is for the 16th Finance Commission to address this issue .

The focus here is on grants

in the disbursement of which scope for discretion is wider. In our constitutional framework, the primary task of recommending grants to States in need of assistance is that of the Finance Commission, until Parliament makes legislation in this regard.

But the fact now is that the flow of discretionary grants to the States through Article 282 have far overtaken (by almost a factor of four) that of the grants recommended by the Finance Commissions. 

Acceding to demands for special packages which are raised by State-based parties, holding the key to parliamentary majority, will weaken the foundations of fiscal federalism, as it will result in diverting national resources away from other States, which too may have pressing needs. 

If this is allowed to happen, we will see the paradox of federal tendencies wilting instead of blooming when single-party dominance fades.

source the hindu