Economic Survey 2014-15 Part 5

19)The striking feature is that India has moved from carbon subsidization regime to one of significant carbon taxation regime-from a negative price to a positive price on carbon emissions. i) excise duty on petrol and diesel as an implicit carbon tax-It prices other externalities like congestion costs(from using vehicles), noise and local air pollution.Also substantial revenue for social redistribution. 

However, inflation concerns are raised due to the consumers not availing benefits due to reduced international oil prices. Ii) Translating coal cess into carbon tax.But it must take into account of the implications for power prices as power affordability should be a major aim of the government.iii) India’s renewable energy program like solar program.

20)Major recommendations of FFC:i)32 % to 42 %-biggest ever increase in vertical tax devolution ii)new horizontal formula-incorporated two new variables 2011 population and forest cover and excluded the fiscal discipline variable iii)other types of transfers proposed including grants to rural and urban bodies, a performance grant along with grants for disaster relief and revenue deficit iv)no sector specific grants

21)Implications of FFC i)All states stand to gain in absolute terms ii)expected to add substantial spending capacity to states’ budgets iii)have more favourable impact on the states(only among the General Category of States) which are relatively less developed which is an indication that FFC transfers are progressive i.e. states with lower per capita Net State Domestic Product receive on average much larger transfers per capita.Note:towards greater fiscal federalism, conferring more fiscal autonomy on the states.

22)But there will be commensurate reductions in Central Assistance to States(CAS) k/as plan transfers. In the last few years, plan transfers have moved away from being Gadgil-formula based to being more discretionary in nature. Greater central discretion evidently reduced progressivity. Thus, a collateral benefit of moving from CAS to FFc transfers is that overall progressivity will improve.