Central and State Financial Relations — Current Affairs 2026
Current Affairs Connections
15th Finance Commission Recommends 41% Tax Devolution to States
February 2020The 15th Finance Commission's recommendation to maintain 41% tax devolution to states (same as 14th FC) while introducing performance-based incentives represents a significant shift in federal finance philosophy. The Commission introduced new criteria including demographic performance and forest cover, reflecting contemporary policy priorities. The recommendation for a separate window for defense and internal security funding addresses long-standing concerns about the impact of these expenditures on state shares. The emphasis on fiscal consolidation and debt sustainability at both levels reflects post-COVID fiscal realities.
UPSC Angle: UPSC likely to test comparison between 14th and 15th Finance Commission recommendations, understanding of new devolution criteria, and the balance between needs-based and performance-based transfers
GST Compensation Dispute Between Center and States During COVID-19
August 2020The dispute over GST compensation payments during COVID-19 highlighted fundamental tensions in India's federal finance system. When GST revenues fell short of the guaranteed 14% growth rate, the center's inability to pay full compensation exposed the risks of the federal compact. States' resistance to borrowing options and demands for unconditional transfers revealed different perspectives on fiscal responsibility and federal solidarity. The eventual resolution through a combination of center borrowing and extended compensation period demonstrated the flexibility of federal arrangements while highlighting structural vulnerabilities.
UPSC Angle: Expected questions on federal fiscal crisis management, the sustainability of compensation mechanisms, and the balance between federal cooperation and state autonomy during emergencies