Financial Relations — Current Affairs 2026
Current Affairs Connections
15th Finance Commission submits final report with ₹1.75 lakh crore performance incentives
February 2021The 15th Finance Commission's final report represents a paradigm shift in Centre-State financial relations by introducing substantial performance-based incentives. The Commission allocated ₹1.75 lakh crore for performance incentives in areas like power sector reforms, ease of doing business, and sustainable development goals. This marks a departure from traditional needs-based allocation to outcome-oriented fiscal federalism. The Commission maintained the 41% devolution recommended by the 14th Commission while creating new mechanisms for competitive federalism. The report also addressed COVID-19's fiscal impact by allowing States to borrow up to 4% of GSDP in 2020-21, demonstrating the system's adaptability to crisis situations.
UPSC Angle: Expected questions on performance-based federalism, 15th Finance Commission recommendations, competitive vs cooperative federalism, and fiscal response to pandemic. Likely to appear in Mains questions about federal finance evolution.
GST compensation cess extension debate intensifies as five-year period ends
June 2022The end of the five-year GST compensation period in June 2022 created significant tension in Centre-State relations. States, particularly those with high petroleum and alcohol tax revenues, demanded extension of compensation mechanism beyond the constitutionally mandated five years. The Centre's position that compensation was temporary while States argued for permanent revenue protection highlighted fundamental disagreements about GST's long-term impact. This debate reflects broader challenges in federal finance: balancing national tax integration with State fiscal autonomy, managing transition costs of major reforms, and ensuring equitable revenue distribution in a dynamic economy.
UPSC Angle: Critical for questions on GST implementation challenges, Centre-State financial disputes, federal taxation principles, and reform transition management. High probability of appearing in both Prelims and Mains.