Vertical fiscal imbalance
Vertical fiscal imbalance Introduction to Vertical Fiscal Imbalance (VFI) The 15th Finance Commission highlighted that States in India face a significant Vertical Fiscal Imbalance (VFI). States incur 61% of the revenue expenditure but collect only 38% of the revenue receipts. This imbalance means that States rely heavily on transfers from the Union government for their expenditures. Why VFI Needs Attention Constitutional Division of Duties: The Union and State governments have constitutionally defined financial responsibilities. The Union government collects major taxes like Personal Income Tax and Corporation Tax, while States handle expenditures on publicly provided goods and…