From Centre to State: Finance Commission Transfers in India

Indian federal system of fiscal governance, a disconcerting fact is the already backward states to actually get the Central allocations because they are not in a position to offer matching grants.  On the other hand, the developed states are in a far better position to obtain, not only their share but even more since the funds are available.  Thus, not only regional disparities keep on increasing, a political dimension also emerges as well as a mal-functioning fiscal system wherein the resources get concentrated in the higher levels of government and the duties get to be performed by the local level.  In vie of the fact that over sixty percent of resource-transfers from the Centre to the states are made through the Planning Commission and the Central ministries, and not via the Finance Commission, it is hardly surprising that Central intervention in the States’ development programmes has so much increased.  This is not very good for the fiscal health of our federal governance.  Smooth functioning of our federal system has been adversely affected because of the upward trend of grants through Planning Commission and a slower rate of growth of grants through the Finance Commission.  The present work has highlighted the problem of revenu-deficit of the states and their non-consolidation of finances, n on-recovery of expenditure made on public services, principles of equity, rewards for marked efficiency, improving resource bases, fiscal monitoring and other such issues that regularly have been taken up by various Finance Commissions.  It is good that academic and administrative realization is emerging to the fact that the states receive what they are constitutionally entitled to receive in a federal polity.