Why do we need a balanced fiscal federalism? Do you think the fiscal space of the states is weaning away at the hands of the Centre?
Answer: Fiscal federalism deals with the division of governmental functions and financial relations among levels of government. In India, fiscal federalism implies distribution of finances and financial powers (power to collect taxes) between the centre, states and local bodies.
Need of Fiscal Federalism
- Regional and local differences can be taken into account by devolution of powers to federal units i.e. states. This takes care of micro level needs and realities.
- Lower planning and administrative costs as the work is distributed at many levels.
- Competition among local governments favours organizational and political innovations
- More efficient politics as grassroots citizens ....
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