THE OVERDRAFT PROBLEM IN PERSPECTIVE 5 financial relations and restrictive influences and practices limiting the scope of the Finance Commissions. Most of the important recommendations of these men and bodies have fallen on deaf ears. The result is the rapid deterioration in the viability of State finances. Of late, some journalists and economists have been prone to look at the symptom rather than the root causes of issues and problems. They have branded the States burdened with overdrafts as those indulging in acts of gross fiscal "indiscipline" employing "backdoor methods" to augment their financial resources. At the same time, those who underline the basic maladies vitiating the fiscal federal relations are characterised as "confrontationists". The fact that 16 out of 22 States, irrespective of their political affiliations, have resorted to overdrafts is indicative of the fundamental imbalance between powers and responsibilities of the States arising from Constitutional delineations and subsequent developments and fiscal practices. A look into the deeper fiscal realities will therefore be instructive. The Original Sin The property base of taxation is highly favourable to the Centre.5 Land is the mainstay of State taxation while industrial and commercial property is largely the preserve for Central exploitation. Land is limited in quantity and its capital value is deemed to be outside the purview of State taxation. In contrast, the industrial and commercial wealth and income increase with development and provide an expanding and elastic base for Central taxation. The Centre can also wield a commanding influence over commodity taxation which happens to be a common field. Consequently, Central tax resources have a built-in buoyancy and elasticity relative to its developmental responsibilities. The Centre is also bestowed with an exclusive command over foreign exchange and credit apart from its preeminence in borrowing from the banks and other financial institutions. The fiscal dominance of the Centre is therefore inherent in the powers and responsibilities delineated for the two layers of the government under the Constitution. The Constitution proposed to alleviate the inequities arising from vertical fiscal imbalances through tax-sharing and grants-in-aid under the auspices of the Finance Commissions set up every five years. But, Corporation tax which became relatively more lucrative was excluded from sharable taxes. The Finance Act of 1959 excluded company taxes from income-tax. The surcharge on income-tax was also kept outside the divisible pool. Besides, the Centre has been more generous in conceding exemptions and deductions in respect of income-tax as compared to other taxes. Thus, the growth rate of income-tax, whose sharing with the States was obligatory, was curtailed by such erosion of the tax base. Taxes included under Article 269 such as those levied on railway passenger traffic,6