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What is a Grants | Types of Grants

In this article, we will know what is a Grants. England introduced the practice of grants around 1835. In federal states such as the United States and India, grants seem to be an integral part of the government economy.

What is a Grants

What is a Grants

Grant is the financial assistance given by the senior government to the junior government from its own income. The central government pays every year a certain part of the tax revenue or a certain amount to the constituent states or local self-governing bodies to the constituent states.

Despite exercising the economic power conferred by the Constitution and the law, the constituent states have not been able to mobilize sufficient funds to meet their development and welfare objectives and plans. To provide for some of this, a part of the central revenue is given by the central government to the constituent states as grants. It has twin objectives of development and balanced development of all the states. Such grants were customary in Canada and Australia. In India, under the Act of 1935, the system of paying part of the linen export tax to the states continued till 1960.

Types of Grants

There are generally two types of grants: conditional grants given for specific purposes on specific terms and unconditional grants that are allowed to be used for any purpose unconditionally.

1. Conditional Grant

A grant given for a specific purpose is to be used for the same purpose. In the interest of all the states, that is, in the interest of the nation, the central government has to take some action from a broader perspective. The constituent states are given conditional grants for their adaptation, which is the central government’s formulaic policy in this regard. This can lead to successful national planning and progress in matters of local importance entrusted to the local government.

2. Unconditional Grant

These grants should not form part of the central grant. Nor are they given for any particular purpose. So the economically backward states can make better use of unconditional grants. Means of communication and other services are inadequate in such states.

These grants can be used to increase the quantity, quality and capacity of these services as there is a need for a certain level of such services across the country. Similarly, these grants can be utilized by the government of a particular state considering its needs and urgency. Unconditional grants have dual benefits and are useful in addressing regional economic inequality.

Grants From Different Countries

1. United States

In the United States of America, there is no provision for state remittances or unconditional grants. The importance of conditional grant varies from place to place. In recent years, two-thirds of the grant has been spent on public assistance and national highways. Three-fourth of the state’s public welfare expenditure can be met with grants. Similarly, the central government bears one-fourth of the expenditure on national routes.

Education and health account for about one-eighth of the state’s expenditure and seven per cent of the central expenditure. In giving these grants, more importance is given to the needs of the states than the national objectives. There is extensive central control and supervision of these grants. After the economic recession of 1929, the backward states of the south started thinking sympathetically.

2. Canada

Unconditional grants are widely available in Canada. These grants are given as compensation as the Center has taken over the power to levy taxes. In Canada, conditional grants are considered part of central expenditure and account for 30 to 40 percent of central aid. These grants include health, old age salary, technical education, road construction etc. Work is paid for. Unconditional grants to needy states have got more recognition. He was criticized for not using the principle of equality in these grants. But the Rowell Siroi report recommended that in the case of financial services, unconditional grants should be used to provide an equal opportunity.

3. Australia

In Australia, both conditional and unconditional grants are given, amounting to 40% of the state’s income. The rate of unconditional grants is high in Australia. From 1959-60, a part of the tax revenue was paid as compensation. The criterion of financial need was adopted later. The conditional grant has been in vogue since 1828 and the conditions are strictly adhered to. Grants for backward areas, a specialty of the place, are provided by the Grants-Commission. In 1964-65 the state grant ranged from 28 to 557 per person per annum.

4. India

It was convenient and necessary for the overseas British monarchy to keep India as a unitary state during the period of independence. But under British rule, the provinces got more autonomy under the Act of 1935. After independence, the Constitution of India provided economic independence to the constituent states in several important ways.

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