THE OVERDRAFT PROBLEM IN PERSPECTIVE 9 branded as a "backdoor" method used by those indulging in wilful financial indiscipline leading to fiscal anarchy. By the same token, those who seek enduring remedies for the basic maladies in fiscal federalism can by no means be called "confrontationists" just because the solutions demand a drastic realignment of fiscal powers in favour of the States. Restructuring Fiscal Federal Relations The above analysis reveals that overdrafts are the result of certain deep-seated maladies in fiscal federal relations in India. Even inflationary financing is a recurring phenomenon Jinked to the constraining influence of the deepening economic crisis. Yet, insofar as the recent spurt in overdraft is the immediate outcome of rising prices and the consequent escalations in the cost of living and in investment costs, it is necessary to link the quantum of Central assistance to indices of costs of living and of construction. The next important measure is to restore Central assistance to the relative level reached under the Third Plan when it accounted for about 67.5 per cent of the State Plan outlay. This would imply that Central assistance will have to be more than doubled for the Sixth Plan period. Besides, at least 50 per cent of the market borrowing should also be made available to the States, It stands to reason that, given the predominance of the Centre in respect of the tax base as well as the elasticity and buoyancy of Central taxes, Central assistance should increase relatively to increases in the size of State Plan. However, the main thrust of restructuring fiscal federal relations in India, from a long-term point of view, should aim at minimising the financial dependence of the States in respect of their revenue and capital requirements, considering the discretionary elements in Central transfers and ensuring a degree of equalisation which would progressively reduce inter-State imbalances in development. The first step in this direction is to augment the free resources of the State Governments One way is to shift one or two tax heads from the Central to the State list. Central excise is one such tax which could be merged with sales tax at the State level. Such a merger would not violate the principle of allegiance. Yet, the current thinking in the country following the Jha Committee Report (1978) is in the opposite direction. The alternative course of action is to expand the "divisible pool" by including corporation tax, the entire proceeds of Central excise etc., so that a large bulk (say, about 75 per cent) of the net proceeds could be made available to the States. The actual distribution among the States could be entrusted to the Finance Commission based on an objectively determined eligibility index which gives due weightage to backwardness. The Finance Commission could be made a permanent body which may be also entrusted with the task of a periodic review of the Central finances,