The Union government is endowed with more tax powers than the States, while the States are assigned more expenditure responsibilities than the Union government. This gives rise to a vertical fiscal imbalance (VFI) between the Union and State governments.
Balance tax revenues with states —
What is the trend of VFI in India?
What should be done?
Conclusion —
Reassigning taxing powers to the States is the ideal fiscal federalism in a market-driven economy. It will provide freedom for the States to chart their strategy of economic development, with the Union government playing the essential role of regulation of markets.
Source – The Hindu
QUESTION – An overhaul of the GST regime can improve the vertical fiscal imbalances between the Union and the states in India. How? Discuss in brief.