Economics • Indian EconomyMedium
How do central fiscal transfers under the recommendations of the Finance Commission impact the budgetary position of a special category hill state like Sikkim?
A. They provide untied and gap-filling grants to address structural revenue deficits arising from difficult terrain.✓ Correct Answer
B. They mandate heavy corporate tax collection by the state government.
C. They eliminate all forms of central tax devolution.
D. They restrict state expenditure exclusively to defense infrastructure.
💡 Solution & Explanation
Finance Commission awards for special category hill states incorporate higher weightage for fiscal capacity distance, difficult terrain, and sparse population, ensuring adequate untied grants to cover revenue shortfalls. Corporate tax collection is a central government domain under Article 246. These fiscal transfers are vital for sustaining public infrastructure development in Sikkim.
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