62 SOCIAL SCIENTIST Centre's resources also need to be remembered", as the Commission's report points out, and that expenditures on defence, food and fertiliser subsidies and interest payments are among the Centre's responsibilities. If 50 per cent ot the Centre's revenues is being absorbed by these heads of expenditure, and if 37 per cent of the remaining 50 per cent is being transferred to the states on the recommendations of either the Finance Commission or the Planning Commission (Report, p8), then it would appear that the states do not have grounds to complain. Tax revenues, however, are not the only sources of finance available to the Central government. In addition to taxes, the Centre raises resources through borrowings (both internally and in the international market or through multilateral agencies) and through borrowing from the Reserve Bank (deficit financing in the Indian context). Both these sources, and especially market borrowings within the economy, are heavily biased towards the Centre, as the Eighth Finance Commission readily admits. Moreover, the distribution of taxes amongst the categories of 'must be shared5 and 'may be shared' is such that most direct taxes (except the tax on corporate incomes) fall in the former category, while most indirect taxes, including, most importantly, Central excise duties, fall in the latter category. While the states have large shares in direct taxes, specially income taxes where their share is as high as 85 per cent, they have smaller shares in the indirect taxes (45 per cent in excise duties by the recommendation of the Eighth Finance Commission). It is the indirect taxes which are both high yielding (almost 80 per cent of total tax revenues of the Centre and the states are derived from these) and bouyant sources of revenue (indirect taxes account for the major share of the annual increase in tax revenues). Thus, for example, the contribution to states' revenue out of their share in income taxes has fallen behind the contribution of the states' share in excise since the Third Five Year Plan; for the period 1979-1984, while states' share of income taxes amounted to Rs 5,191 crores, their share of basic and additional excise duties amounted to Rs 15,914 crores.1 Finally, the Centre's contribution to the states' revenues is again on the increase, being aproximately 43 per cent for 1980-81,2 compared to 41.1 per cent in 1975-76 and the all-time high of 48.1 per cent in 1971-72.3 It may not be out of place here to mention that the relative importance of transfers (of tax shares and grants-in-aid) as recommended by the Finance Commission is on the increase compared to transfers recommended by the Planning Commission and by other Ministries. If these are the reasons why the Eighth Finance Commission's efforts to boost the finances of the states are to be welcomed, thay are also the reasons why the attitude of the Central government towards the recommendations of the Commission should be a cause for concern. The Union goverment has, in effect, decided not to implement the recommendations of the Commission as contained in its final report (submitted to the President in April 1984) during the year 1984-85 but to postpone