States are the building blocks of the nation. For growth of the country as a whole states growth
proportionately and with equity is needed. Various Sources of funds for states are:
  1. Devolution of funds for states under statutory and discretionary grants.
  2. Taxes that states levy on the people like VAT, Sales tax, Octroi, Excise etc. The new GST if implemented would make states get more devolution of funds and also as compensation from centre to some.
  3. Special grants like under Special status states like J&K, NE states, Himachal Pradesh etc.
  4. States can borrow funds from the market.
  5. States can borrow funds from Nationalized banks, RBI and Union Govt.
Recent changes like Implementation of 14th Finance commission by the Union govt will provide more share for states from central taxable pool of resources. This means the spending autonomy of states increased as many centrally sponsored schemes are being dismantled. This makes states to design schemes according to their needs promoting equal development all areas relative to other states. As states are responsible for Health, Education, Sanitation, they can spend for overall Human development that boosts HDI and turns into economic growth for holistic development.
Note: To effectively spend the funds:
  • Monitoring mechanism should be strengthened
  • Transparency and use of IT tools to ensure accountability
  • Need based, long term planning and performance based funds
Critical Assessment of Devolution in India
India is federal polity. Federalism was adopted for India to accommodate diversity and solving regional problems regionally. Subjects were divided in constitution union and state level government. Division of subjects is according to issues of regional importance are put under state list like health, education, sanitation etc.
From the late 1950s it became evident that centralized planning and bureaucracy cannot deliver public goods efficiently. For These reasons focus on decentralization was put by inaugurating Panchayats during 1959.
Attempts of decentralization are made by 73rd and 74 amendment, various finance commission report etc. But these attempts do not seem to have good will of union and state government.
On one hand subjects in union list and concurrent list are increasing, but state list is being contracted. State list now have only 60 subjects from 66 at time of enactment of constitution.
Subjects in concurrent list are being increasingly being legislated by union government. Land acquisition is one of the examples.
Centrally sponsored schemes have subject such as health and education, which fall under state subjects. This is also a kind of centralization. Similarly though constitution provides 29 subject under schedule 11 to Panchayat and 18 subject to ULBs under schedule 12 but their devolution at state level is not visible.
All these show there is much talk for decentralization but there is very less work being done in direction on ground.
Despite efforts being made to bring decentralization since independence, in reality the reverse has taken place. Critically examine. (200 Words)
A 2013 central bank study found state expenditure to have a far bigger beneficial impact on growth than spending by the Union government, which is much more likely than states to use borrowed funds to make payments. Examine the sources of funds for states, recent trends in devolution of funds to states by the union government and how can states spend the money effectively for the welfare of the people. (200 Words)

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