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Critical Topics and Their Significance for the UPSC CSE Examination on September 06, 2024
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What is vertical fiscal imbalance?
For Preliminary Examination: Current events of national and international importance
For Mains Examination: GS III - Indian Economy
Context:
The role of the 16th Finance Commission should be to eliminate vertical fiscal imbalance in federal relations. What should it do when revenues are concentrated with the Union government, and the States are burdened with expenditure responsibilities?

Read about:
What is a Fiscal dilemma?
What is fiscal deficit?
Key takeaways:
The financial dynamics between the Union government and States in India are imbalanced, similar to many other federal systems. According to the 15th Finance Commission, while States account for 61% of revenue expenditure, they only generate 38% of revenue. This means that States largely depend on financial transfers from the Union government to meet their spending needs, leading to what is termed Vertical Fiscal Imbalance (VFI), where the States' expenditure responsibilities exceed their revenue-raising powers.
Why Reducing VFI is Important
- The Indian Constitution outlines separate financial responsibilities for the Union and States. On the revenue side, taxes like Personal Income Tax and Corporation Tax are more efficiently collected by the Union, whereas on the expenditure side, local governments are better suited to deliver public goods and services. This imbalance in revenue collection and expenditure creates a VFI that requires attention.
- The 15th Finance Commission observed that India's VFI is larger compared to many other federations, and this gap widened during crises like the COVID-19 pandemic, when States’ spending exceeded their revenue.
- The Finance Commission addresses VFI by focusing on two key issues. The first is determining how the Union government should distribute its tax revenue among the States.
- These transfers are a portion of the "Net Proceeds" (gross tax revenue minus surcharges, cesses, and collection costs). The second issue concerns how these funds are divided among individual States. VFI mainly emerges as part of the first issue.
- In addition to tax devolution, the Finance Commission also recommends grants to States in need, as per Article 275 of the Constitution, though these grants are usually temporary and for specific purposes.
- The Union government also provides significant funding under Article 282 through centrally sponsored and central sector schemes, but these are often tied to specific conditions, unlike the unconditional tax devolution.
Calculating VFI in India
To estimate VFI, we measure the combined Own Revenue Receipts (ORR) and tax devolution from the Union to the States against their Own Revenue Expenditure (ORE). If this ratio is below 1, it indicates that States' revenues, even with Union transfers, are insufficient to cover their expenditures. The deficit in this ratio serves as a proxy for VFI after tax devolution.
To eliminate VFI, tax devolution would need to be increased. Between 2015-16 and 2022-23, the average tax devolution to States should have been 48.94% to achieve fiscal balance, but the 14th and 15th Finance Commissions recommended only 42% and 41%, respectively.
Increasing Tax Devolution
- Many States argue that tax devolution should be set at 50% by the 16th Finance Commission, especially considering that cesses and surcharges are excluded from the net proceeds, thereby reducing the actual amount distributed.
- Based on our analysis, if current State expenditure levels are maintained, the tax devolution needs to increase to around 49% to eliminate VFI. This increase would provide States with more flexible funding to address their local needs and improve the efficiency of public spending, ultimately fostering a more balanced system of fiscal federalism
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Answer (C)
Thus, the correct statements are 1 and 3 |
- The Swachh Bharat Mission-Grameen, launched on October 2, 2014, resulted in the construction of over 11 crore household toilets by 2020, with more than six lakh villages declared Open Defecation Free (ODF), according to official data. Similarly, under the Swachh Bharat Mission-Urban, over 63 lakh individual household toilets and 6.36 lakh community public toilets were constructed.
- A study revealed a significant decrease in infant mortality due to increased access to sanitation. Districts with even 30% toilet coverage saw a notable reduction in infant mortality, preventing around 60,000-70,000 deaths annually.
- In 2012, the infant mortality rate was 40 deaths per 1,000 live births per district, which dropped to about 33 in 2016, and further declined below 30 by 2019. The under-five mortality rate also fell, from around 44 per 1,000 live births in 2012 to below 30 in 2019.
- The Swachh Bharat Mission (SBM), initiated by the Prime Minister on October 2, 2014, aimed to provide universal sanitation coverage and eliminate open defecation across the country. The government boosted toilet infrastructure by offering financial support for the construction of household and community toilets, especially for slum and migrant populations.
- The second phase of SBM, launched in 2020 and continuing until 2025, focuses on maintaining the progress made in phase one and advancing the management of liquid and solid waste through technological innovation and private sector involvement
The Infant Mortality Rate (IMR) is a key health indicator that measures the number of deaths of infants under one year of age per 1,000 live births in a given year or population. It is used to assess the overall health of a population and the effectiveness of healthcare systems, particularly in areas such as maternal and child health, sanitation, and disease prevention.
A lower IMR typically indicates better healthcare, nutrition, and living conditions, while a higher IMR suggests challenges in these areas
Follow Up Question
As per the Solid Waste Management Rules, 2016 in India, which one of the following statements is correct? (UPSC CSE 2019)
(a) Waste generator has to segregate waste into five categories.
(b) The Rules are applicable to notified urban local bodies, notified towns and all industrial townships only
(c) The Rules provide for exact and elaborate criteria for the identification of sites for landfills and waste processing facilities.
(d) It is mandatory on the part of the waste generator that the waste generated in one district cannot be moved to another district.
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(c) The Rules provide for exact and elaborate criteria for the identification of sites for landfills and waste processing facilities. Under the Solid Waste Management Rules, 2016, detailed guidelines are provided for identifying suitable locations for landfills and waste processing facilities, ensuring environmental and social safeguards. The other options are not accurate representations of the rules |
Mains
How could social influence and persuasion contribute to the success of Swachh Bharat Abhiyan? (UPSC CSE 2016)
The Loss and Damage Fund is a financial mechanism established to help developing countries cope with the adverse impacts of climate change. It was created as part of international climate negotiations, specifically under the United Nations Framework Convention on Climate Change (UNFCCC), to provide compensation for losses and damages caused by climate-related disasters such as floods, storms, sea-level rise, and other extreme events.
The fund aims to address the consequences that are beyond the capacity of countries to adapt to, especially in vulnerable nations that contribute the least to global emissions but are disproportionately affected by climate change. The Loss and Damage Fund became a key outcome of the COP27 climate conference in 2022, where developed countries agreed to contribute financial resources to support this effort.
This fund acknowledges that even with mitigation and adaptation efforts, certain damages from climate change are inevitable and need to be addressed through financial aid.
More Information
India has played a significant role in advocating for the establishment of the Loss and Damage Fund to address the impacts of climate change on vulnerable nations. As a developing country and a key player in global climate negotiations, India has consistently highlighted the need for a fair and equitable approach to climate finance, with an emphasis on the principle of "common but differentiated responsibilities" (CBDR). This principle underscores that while all countries must act on climate change, developed nations, which have historically contributed the most to global emissions, should take greater responsibility in financing climate-related losses and damages.
Key aspects of India's role in the Loss and Damage Fund:
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Advocacy for Climate Justice: India has been vocal about the importance of climate justice, emphasizing that developing countries, which are the least responsible for global warming, should not bear the brunt of its impacts. India has consistently pushed for financial assistance to help vulnerable countries cope with irreversible losses from climate disasters.
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Supporting the Vulnerable: Although India itself faces significant climate risks, it has also supported the cause of smaller, more vulnerable nations, such as small island developing states (SIDS) and least developed countries (LDCs), that are at the frontline of climate change impacts. At COP27, India aligned with other developing nations in advocating for the creation of a Loss and Damage Fund to address the needs of these countries.
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Balanced Approach: While supporting the Loss and Damage Fund, India has also stressed the need for a balanced approach in climate negotiations, which should not detract from the importance of mitigation and adaptation efforts. India emphasizes that the Loss and Damage mechanism should complement, rather than replace, efforts to reduce emissions and invest in adaptation strategies.
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Focus on Implementation: After the Loss and Damage Fund was agreed upon at COP27 in 2022, India has continued to focus on the implementation phase. India calls for transparency and clarity in how the fund will be structured, governed, and financed, with a clear distinction between contributions from developed countries and developing nations
Follow Up Question
1.Explain the purpose of the Green Grid Initiative launched at World Leaders Summit of the COP26 UN Climate Change Conference in Glasgow in November, 2021. When was this idea first floated in the International Solar Alliance (ISA)? (2021)
2.Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (2021)
Law Commission
For Preliminary Examination: Law Commission, Finance Commission
For Mains Examination: GS II - Indian Polity & Governance.
Context:
The Union government has notified the constitution of the 23rd Law Commission of India with effect from September 1. The commission, which was notified on September 2, will have a three-year term. The tenure of the previous Law Commission chaired by former Karnataka High Court Chief Justice Ritu Raj Awasthi ended on August 31.
- The Law Commission is an advisory body that is not established by any parliamentary law but is constituted by the Union Ministry of Law and Justice through a gazette notification. Its role is to assist the government in reviewing the functioning of laws, suggest the repeal of outdated legislation, and offer recommendations on issues referred to it by the government.
- The commission is typically led by a retired Supreme Court or High Court judge, with legal scholars serving as members. Current judges may also be appointed, as stated in the notification for the new panel.
- Since Independence, 22 Law Commissions have been appointed, submitting a total of 289 reports to the government. While the government is not required to implement the recommendations, many have led to significant laws, such as the Criminal Procedure Code, 1973, and the Right of Children to Free and Compulsory Education Act, 2009.
- Following recommendations from the 20th Law Commission, the government initiated the process of repealing over 1,500 outdated central laws
- The notification issued by the Law Ministry’s Legal Affairs Department on September 2 states that the panel will include a full-time chairperson, four full-time members (including a member-secretary), up to five part-time members, and the secretaries of the Legal Affairs and Legislative departments as ex officio members.
- The commission’s tenure will last until August 31, 2027. The chairperson and full-time members can be serving judges from the Supreme Court or High Courts, or other experts chosen by the government.
- This was also mentioned in the notifications for the 2020 (22nd) and 2015 (21st) commissions, which were chaired by Justice Awasthi and former Supreme Court judge Justice B S Chauhan, respectively.
- The chairperson and members of the 23rd Law Commission have yet to be appointed, with the Appointments Committee of the Cabinet, led by the Prime Minister, making the final decision. The 22nd Law Commission members were appointed in November 2022, marking the start of their work.
- If a serving judge is appointed, they serve either until retirement or the end of the commission’s term, whichever is earlier, and receive no extra pay beyond their judicial salary.
- In the case of "other" appointees, the chairperson receives a monthly salary of Rs. 2.50 lakh, while a member earns Rs. 2.25 lakh. The member-secretary must be an officer of the Indian Legal Service at the Secretary level
- The terms of reference for the 23rd Law Commission are largely similar to those of recent commissions. The first three key tasks include: identifying outdated or unnecessary laws that can be repealed; developing a Standard Operating Procedure (SoP) for regularly reviewing existing laws, including simplifying their language and processes; and identifying laws that are out of sync with current economic needs and require amendments.
- Like the 22nd and 21st commissions, the 23rd Law Commission is also tasked with reviewing laws in light of the Directive Principles of State Policy, proposing reforms and suggesting new legislation to implement these principles and achieve the goals outlined in the Constitution's Preamble.
- The Prime Minister's recent call for a "secular civil code" aligns with the Directive Principle that urges the state to work towards a uniform civil code across India. The 22nd Law Commission also examined this issue, but its findings are not publicly known, as its chairperson took office as a Lokpal member in March before the report could be submitted.
- Additionally, the 23rd Law Commission is charged with reviewing laws impacting the poor, conducting post-enactment audits of socio-economic legislation, and improving judicial administration to better address contemporary needs
1.Which of the following statements about the Law Commission of India is/are correct?
- The Law Commission is a statutory body created by an Act of Parliament.
- The commission is responsible for reviewing and recommending changes to outdated or obsolete laws.
- The recommendations made by the Law Commission are mandatory for the government to implement.
- The Law Commission is typically chaired by a retired judge of the Supreme Court or High Court.
Select the correct answer using the codes given below:
(a) 1 and 3 only
(b) 2 and 4 only
(c) 1, 3, and 4 only
(d) 1, 2, 3, and 4
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Answer (b)
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Answer (B)
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| Subject | Topic | Description |
| History | Modern Indian History | National Movements between 1919 to 1939 |
| History | Modern Indian History | Governor generals of India |
| History | Modern Indian History | Doctrine of Lapse |
| History | Modern Indian History | Religious reform Movements |
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