20th October 2023 (9 Topics)
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An Expenditure Gap
Context:
There is a need to revisit the subject of expenditure allocations by the Finance Commission.
Controversies in Expenditure Allocation:
- Political Parties and Spending Priorities: In democracies, parties in power make decisions on public spending without referendums, to maximize economic value, favoring capital expenditure for its multiplier effect, but non-development expenditure also holds importance.
- Redistribution and Progressive Taxation: Progressive tax structures are employed, but the concept of redistribution remains ambiguous, sometimes seen as providing "freebies" to the poor.
- Public Preferences vs. Economic Value: Land acquisition for larger projects is contentious, as compensation issues arise, affecting landless laborers.
State vs. Centre
- Citizen-Centric State Initiatives: States are more inclined to provide freebies, being closer to citizens and thus more attuned to their preferences.
- Industrial expansion via Freebies: Free or subsidized meals, as well as power and water for farmers, are defended on the grounds of stabilizing prices and supporting vulnerable sections.
- Debates on Loan Waivers and Industry Bailouts: Loan waivers are viewed favorably as they provide direct government support to vulnerable sections, unlike industry bailouts using depositors' money.
Addressing Spending Allocation Challenges
- Election Promises and Fiscal Constraints: Political parties make promises to voters during elections, but there's often a gap between promises and actual delivery due to fiscal limitations.
- The Need for Spending Norms: Implementing spending caps and ensuring parity across all levels of government could be a solution to the allocation dilemma.
- Way forward: The upcoming Finance Commission should consider formulating such norms to guide expenditure decisions effectively.
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