Mains Practice Q&A — Fiscal Federalism in India (March 2025 Yojana)
(You can change the topic name each time)

🧭 Thematic Focus:

• GS Paper: (e.g., GS Paper 2 – Governance & Polity)
• Yojana Edition: March 2025
• Category: Monthly Summaries → Yojana Summaries → March 2025
• Tags: Fiscal Federalism, Union Budget 2025, Finance Commission, Cooperative Federalism

❓ Mains Practice Question (250 Words)

Q2. Evaluate the role of Union Budget 2025–26 in strengthening fiscal federalism in India. How do schemes like tax devolution and capital expenditure assistance enhance Centre–State coordination?

(Word Limit: 250)

🖊️ Suggested Model Answer:

Answer:
The Union Budget 2025–26 reinforces the principles of cooperative and competitive federalism by empowering states financially and administratively to align with the national goal of Viksit Bharat @2047.

A major component is the enhanced devolution of central taxes, with ₹14.22 lakh crore allocated—marking a 14% rise from the previous year. Based on the 15th Finance Commission’s recommendations, states now receive 41% of divisible taxes, offering untied funds that can address region-specific development needs.

To promote infrastructural growth, the Centre has allocated ₹1.5 lakh crore under the Scheme for Special Assistance to States for Capital Expenditure, offering 50-year interest-free loans. This incentivizes reforms in urban planning, land records, and power sector governance.

Further, the 0.5% of GSDP additional borrowing ceiling tied to power reforms strengthens financial autonomy, while maintaining fiscal discipline. Grants-in-aid for Centrally Sponsored Schemes (CSS), amounting to ₹5.41 lakh crore, empower states in sectors like agriculture, health, education, and rural infrastructure.

Despite these steps, implementation challenges remain: delayed fund transfers, capacity constraints in state planning, and vertical fiscal imbalance.

Nevertheless, the Budget marks a significant shift towards empowering states as active partners in nation-building. By blending resource transfers, performance-based incentives, and sectoral reforms, it enhances fiscal federalism and strengthens Centre–State coordination.

📌 Keywords for Enrichment:

• Fiscal federalism
• 15th Finance Commission
• Tax devolution (41% share to States)
• Special Capital Assistance Scheme
• 50-year interest-free loans
• GSDP-linked borrowing ceiling
• Centrally Sponsored Schemes (CSS)
• Vertical and horizontal fiscal imbalance
• Article 280, Article 293
• Cooperative and Competitive Federalism
• Empowered States
• Centre–State synergy

🔍 GS Paper Mapping

• GS Paper 2 – Governance, Centre–State relations
• GS Paper 3 – Budgeting, Public Finance

🪔 Closing Whisper:

“True federalism is not just shared power — it is shared purpose.” 🌿