Which of the following is not a problem of federal finance in India?

The correct answer is Increased importance of Finance Commission.

Key Points

• The Finance Commission is a constitutional body that provides recommendations on the distribution of tax revenues between the central and state governments.
• Its role is crucial in ensuring fiscal federalism and equitable allocation of financial resources among the states.
• The increased importance of the Finance Commission is not a problem but an essential feature for the balanced financial administration of the federal structure in India.
• It addresses issues related to fiscal transfers, grants-in-aid, and revenue-sharing between the center and states, which are vital for the financial stability of the states.

Additional Information

• Federal Finance in India:
  • It involves the financial relationship between the central and state governments.
  • Key components include revenue sharing, grants, and loans from the center to the states.
  • The distribution of financial resources is governed by the recommendations of the Finance Commission.
• Finance Commission:
  • Constituted under Article 280 of the Indian Constitution.
  • It is established every five years or at such earlier times as the President considers necessary.
  • Its recommendations aim to ensure a fair distribution of financial resources.
• Challenges in Federal Finance:
  • Gap between the financial needs and resources of state governments.
  • Regional imbalances in development and resource allocation.
  • Issues regarding state autonomy and fiscal independence.
• Fiscal Federalism:
  • Refers to the financial relations between units of governments in a federal system.
  • It ensures the allocation of resources in a manner that supports balanced regional development.
  • Key instruments include tax sharing, grants, and loans.