It is a complimentary/secondary instrument to attend the issue of ‘horizontal imbalances’ of revenue accruing to the state.
The primary tool is tax devolution.
As per the Article 275, the FC recommends the principle – as well as the quantum of grants to those states which are in need of assistance – different sums may be fixed for different states (one of the pre-requisites for such grants is the assessment of the needs of the states).
The 1st FC had laid down 5 broad principles for determining the eligibility of a state for grants:
The Budget of a state as the starting point for examination of a need.
The efforts made by states to realize the potential.
The grants should help in equalizing the standards of basic services across states.
Any special burden or obligations of national concern, though within the state’s sphere, should also be taken into account.
Grants might be given to further any beneficent service of national interest to less advanced states.
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