PUBLIC FINANCE
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MEANING OF FEDERAL SET UP/FEDERALISM
1. POLITICAL
SYSTEM IN WHICH THERE IS DEFINED DIVISION OF SOVEREIGNTY BETWEEN THE CENTRAL
AND THE ASSOCIATE STATE GOVERNMENTS
2. UNDER THE
FEDERALISM : SOVEREIGN AUTHORITY LIES IN THE CENTRE OR UNION GOVERNMENT
3. THE SAME
PRINCIPLE MAY BE FURTHER EXTENDED THAT THERE ARE LIKELY LOCAL OR MUNICIPAL
GOVERNMENT WITH IN EVERY INDIVIDUAL STATE.
4. THE DUTIES
AND RIGHTS OF DIFFERENT UNITS ARE DETERMINED IN CERTAIN MANNER IN ACCORDANCE
WITH THE CONSTITUTION OF THE COUNTRY.
5.
MEANING OF FEDERAL SET UP/FEDERALISM
6. BOTH SETS OF
AUTHORITIES ARE INDEPENDENT IN THEIR JURISDICTION BUT THE EXACT POWERS AND
FUNCTION OF DIFFERENT UNITS CAN DIFFER FROM STATE TO STATE.
7. IN FEDERAL
SET UP,THOUGH THE CENTRAL AUTHORITY HOLDS SUPERVISORY OVER ALL UNITS YET THESE
UNITS ARE GIVEN AUTONOMY IN CERTAIN MATTERS.
8. IN THE
MATTERS OF NATIONAL INTEREST SUCH AS INTERNAL AND EXTERNAL SECURITY,UNITY AND
INTEGRITY,THE CENTRE HAS THE COMPLETE SAY
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DEFINITION OF FEDERAL FINANCE
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A FEDERALISM IS A FORM OF GOVERNMENT IN WHICH
THE SOVEREIGNTY OR POLITICAL POWER IS DIVIDED BETWEEN THE CENTRAL AND LOCAL
GOVERNMENT SO THAT EACH OF THEM WITHOUT WITH IN ITS OWN SPHERE IS INDEPENDENT
OF THE OTHER,
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SALIENT FEATURES OF FEDERAL SET UP
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THROUGH DEVOLUTION OR AGGREGATION
1. THE FEDERAL
OR THE UNION GOVERNMENT
2. THE
CONSTITUTIONAL UNITS OR STATE GOVERNMENT
POWERS AND
FUNCTIONS ARE DIVIDED BETWEEN THROUGH CONSTITUTIONAL PROVISIONS
BUT CAN NOT
BE SEPARATED IN THE MODERN ERA
THERE ARE
FUNCTION WHERE BOTH THE UNION AND STATE
GOVERNMENT ARE EQUALLY INTERESTED IN THE DEVELOPMENT SCHEMES LIKE
EDUCATION,PUBLIC HEALTH
STATE
GOVERNMENT HAVE TO DEPEND FROM THE UNION GOVERNMENT FOR SECURITY AND
COMMUNICATION
NEEDS A CLOSE
CO-ORDINATION BETWEEN THE POLICIES OF THE CENTRAL GOVT AS WELL AS STATE GOVT
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JUSTIFICATION OF FEDERAL SET UP
1. MORE
FINANCIAL DISCIPLINE:-FINANCIAL RESOURCES FOR DIFFERENT LAYERS OF THE GOVT ARE
FIXED AND NO OVERLAPPING OF THE SOURCES. IF THE STATE GOVERNMENT ARE NOT TO
RAISE THE FUNDS FOR THEMSELVES AND THEY ARE TO SEEK FUNDS FOR THEMSELVES AND
THEY ARE TO SEEK FUNDS FROM THE UNION GOVERNMENTS,TENDENCY OF OVER SPENDING AND
IF THE CG IS TO DRAW FUNDS FROM STATE GOVERNMENT THE CG WILL NOT BE ABLE TO
DISCHARGE ITS FUNCTIONS. FEDERAL SET UP HELPS TO CREATE MORE FINANCIAL
RESOURCES BOTH AT BEHEST OF CENTRAL AND STATE GOVERNMENT AND PERFORMING THE
VARIOUS FUNCTIONS.
2. EFFICIENCY:-
THE POLITICAL,ECONOMIC AND SOCIAL PATTERN OF MODERN SOCIETY JUSTIFIES THE
FEDERALISM TO A GREATER EXTENT. WELL KNOWN THAT THERE ARE SOME DUTIES WHICH A
GOVT AT THE STATE LEVEL CAN DISCHARGE EFFICIENTLY WHILE SOME DUTIES CAN BE
DISCHARGED BY THE CENTRAL GOVERNMENT.
3. TO AVOID
DOUBLE TAXATION:-CLEAR DISTINCTION BETWEEN THE SOURCES OF RAISING FUNDS BY EACH
LAYERS OF THE GOVERNMENT. BOTH SHOULD NOT IMPOSE TAXES ON EACH OTHER’S
JURISDICTION
4. TO SOLVE THE
REGIONAL PROBLEMS:-EVERY REGION POSSESSES ITS OWN ECONOMIC RESOURCES AND
POTENTIALITIES AND FACE COUNTLESS PROBLEMS.GREAT REGIONAL DISPARITIES.
DIVERSIFIED PATTERN TO SUIT THE REGIONAL REQUIREMENTS AS DIFFERENT REGIONS
WHICH ARE CHARACTERIZED BY DIFFERENT ECONOMIC,CULTURAL SITUATION AND ARE
INHABITED BY DIFFERENT GROUPS OF PEOPLE.
5. FREE FLOW OF
INTER SATE TRADE:-THE FINANCIAL POWERS BETWEEN THE UNION GOVERNMENT AND THE
STATE GOVERNMENT SHOULD BE ALLOCATED IN SUCH A MANNER SO THAT THEY MAY NOT RESORT TO TAX COMPETITION
JUST TO ATTRACT THE OUTSIDE CAPITAL.
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DIVISION OF FUNCTIONS
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ON THE GROUNDS OF EFFICIENCY AND ECONOMY:
1. DIVIDE THE
FUNCTIONS BETWEEN CENTRE AND THE STATE
2. SOME
GOVERNMENTAL FUNCTIONS MAY BE PERFORM MORE EFFICIENTLY AT THE ONE LEVEL AND
OTHERS AT OTHER LEVEL
3. THE PROBLEM
OF INTER STATE DIVERGENCE ALSO WHICH WOULD INDICATE THE DESIRABILITY OF
ASSIGNING DIFFERENT RESPONSIBILITIES
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PROBLEMS
1. MULTIPLICITY
OF TAXATION AND SPENDING AUTHORITY SINCE THE STATE GOVERNMENT AND CENTRAL
GOVERNMENT HAVE DIFFERENT FUNCTIONS TO PERFORM
2. EVERY
CONSTITUTION LAYS DOWN THE PROVISIONS FOR THE DIFFERENT GOVERNMENTS TO INCUR
EXPENDITURE WITH IN THEIR ASSIGNED FIELD AND TO RAISE THE REVENUE FOR THE
PURPOSE.
3. IN INDIA
:SOME STATES GOVERNMENT RULES BY THE
REGIONAL PARTIES DEMANDING MORE AUTONOMY MAINLY ON THE BASE OF FINANCIAL MATTER
4. INTEREST OF
THE STATE AND CENTRAL SHOULD NOT CONFLICT
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FEDERAL SET UP IS CONFRONTED WITH THE ISSUE OF
DIVERSITY AND EQUALITY
1. IN THE
REFERENCE TO THE PROVISIONS OF PUBLIC SERVICES : THE DIVERSITY CONCERNS THAT
REGIONAL AND LOCAL NEEDS SHOULD BE SATISFIED TO THE MAXIMUM EXTENT
2. EQUALITY DEMANDS : NO DISCRIMINATION
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FINANCIAL ADJUSTMENT BETWEEN CENTRE AND STATE
1. SHARING OF
TAX REVENUE:-: ON THE BASIS OF EFFICIENCY AND TAX ADMINISTRATION. DISTRIBUTION
SHOULD BE MADE ON THE BASIS OF FINANCE COMMISSION,
2. SURCHARGE OF
TAXES:-IN THE FORM OF SUPPLEMENTARY TAXES. MAY LEVY A SURCHARGE ON STATES
TAXES AND VICE VERSA. BUT IT IS NOT
HEALTHY SIGN
3. GRANTS IN
AID:- GRANTS ARE MEANT TO BRING A BALANCE BETWEEN THE FUNCTIONS AND RESOURCES
OF A STATE. GRANTS ARE GIVEN UNDER SECTION 275(1) TO DIFFERENT STATES. ALSO
GRANTS –IN-AID TO STATES FOR THE DEVELOPMENT OF SCHEDULED TRIBES AND AREA AND
SOME DISCRETIONARY GRANTS UNDER ARTICLE 282.
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