What to Read in Indian Express Editorial( Topic and Syllabus wise)

Editorial 1 : Fiscal Federalism & State Autonomy

Context:
It examines the trends in fiscal transfers from the Centre to states in India and highlights concerns over the shrinking fiscal space, particularly for high-income states, in the context of Finance Commission recommendations.

Introduction:
Fiscal federalism in India ensures a balanced distribution of financial resources between the Union and the states, enabling both to meet developmental and welfare obligations. The 14th Finance Commission increased states’ share in the divisible pool of central taxes, enhancing their fiscal space, but the 15th FC period witnessed a marginal decline. With the 16th Finance Commission recommendations in place, questions arise about equitable allocation, fiscal autonomy, and sustainable revenue generation. The issue is critical for maintaining cooperative federalism and ensuring states can fulfill socio-economic responsibilities without overdependence on the Centre.

Key Analysis:

• Trends in fiscal transfers:
  • Tax devolution and grants from the Centre form the core of states’ fiscal resources.
  • Share of states in central taxes rose from 32% to 42% under the 14th FC, increasing post-transfer fiscal space from 63.85% to 68.08% of combined receipts.
  • During the 15th FC period, states’ fiscal space slightly declined to 67.39% due to reduced tax devolution, offset partially by Finance Commission (FC) and non-FC grants.
• State-wise variations:
  • High-income states (Haryana, Karnataka, Kerala, Maharashtra, Tamil Nadu) saw a fall of 0.38 percentage points in fiscal space in the 15th FC period.
  • The decline was attributed to a reduction in own revenue receipts and central transfers, reflecting uneven impact of horizontal distribution formulae and non-sharable cesses.
• Factors affecting fiscal space:
  • Changes in tax devolution formulae, increased non-sharable cesses, and surcharge allocations by the Centre.
  • Potential impact of GST 2.0 reforms, including rate reductions and cessation of GST compensation cess, which may reduce states’ revenue autonomy.
  • Horizontal distribution criteria, especially distance-based weights, may disadvantage high-income states relative to less developed states.
• Implications:
  • Reduced fiscal space limits states’ ability to finance infrastructure, health, education, and welfare programs, affecting developmental priorities.
  • Excessive central control over transfers may strain cooperative federalism and undermine fiscal autonomy.
  • Balanced and predictable transfers are necessary to maintain equity among states while respecting contribution and need-based principles.

Way Forward:

• 16th Finance Commission should revise horizontal distribution formulae to account for regional disparities and GST revenue shortfalls.
• The Centre must limit non-sharable cesses and surcharges that erode states’ fiscal autonomy.
• Both Union and state governments need to enhance revenue generation through better tax buoyancy and efficient collection mechanisms.
• Transparent and equitable transfers will reinforce fiscal federalism and support sustainable economic growth.

Conclusion:
Ensuring a fair share for states in central transfers and protecting their fiscal space is critical for cooperative federalism, enabling states to meet developmental obligations and reinforcing equitable growth across India. Strengthening the tax base and rationalizing transfers will sustain fiscal stability while respecting the principles of equity and contribution.

 

Editorial 2 : Rupee Depreciation: Challenges and Opportunities

Context:

Rupee depreciation, though significant, presents opportunities to boost India’s export competitiveness and manage trade imbalances.

Introduction:
The Indian rupee has depreciated significantly over the past year, falling 5.6% against the US dollar, 9.4% against the euro, and 14.3% against the British pound. This decline has also translated into a lower Real Effective Exchange Rate (REER), moving India’s currency from a highly overvalued position to being slightly undervalued. This shift has important implications for foreign trade, external competitiveness, and macroeconomic stability.

Key Issues:

• Rupee Depreciation and Trade Balance:
  • India’s merchandise trade deficit reached a record $41.7 billion in October 2025, highlighting the need for adjustment in the external sector.
  • A slightly undervalued rupee can improve export competitiveness, reduce import dependence, and mitigate the risk of cheap Chinese imports.
  • Exchange rate flexibility serves as an effective shock absorber, offering a more market-driven solution to trade imbalances than traditional protectionist measures such as tariffs or export bans.
• Policy Shift by the Reserve Bank of India (RBI):
  • The RBI’s adoption of a flexible exchange rate policyunder the current governor marks a departure from previous overvaluation strategies.
  • The calibrated depreciation is supported by low domestic inflationand global deflationary pressures, reducing fears of imported inflation.
  • External shocks, including US tariffs and the prospect of a China Shock 2.0, have necessitated a responsive and adaptive exchange rate strategy.
• Macroeconomic Implications:
  • An undervalued rupee enhances India’s ability to correct trade deficitsand sustain current account stability.
  • It incentivizes domestic industry to compete internationally, aligning with the objectives of Make in Indiaand export-led growth
  • However, persistent depreciation could increase import costs, particularly for energy and capital goods, and requires careful monitoring to balance growth and inflation.

Way Forward:

• India should maintain a market-determined and flexible exchange rate regimewhile strengthening foreign exchange reserves to absorb external shocks.
• Complementary measures, such as boosting manufacturing, improving infrastructure, and enhancing export diversification, will ensure long-term competitiveness.
• Coordination between monetary and fiscal policyis crucial to manage inflationary pressures while promoting growth and external stability.
• Policymakers must continue leveraging global trade dynamicsstrategically, ensuring India capitalizes on geopolitical shifts and supply chain realignments.

Conclusion:
The current rupee depreciation, rather than being a cause for alarm, presents an opportunity to enhance India’s export competitiveness and economic resilience. A flexible exchange rate policy, supported by structural reforms and strategic trade policies, can serve as a critical tool for sustaining macroeconomic stability, trade balance, and long-term growth.