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The Indian Economy Since 1991, 2nd Edition by B. A. Prakash

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32

Centre-State Financial Relations in the Post-Liberalization Period

Jose Sebastian

32.1 Introduction

The imbalance between revenue-raising powers and expenditure responsibilities is a common problem in most federations. Recognizing this, the constitutions of these countries have provided for mechanisms for federal fiscal transfers. These transfers are intended to: (i) remove or minimize the vertical imbalance originating from the division of functions, and sources of revenue, between the centre and subcentral units; and (ii) offset the horizontal fiscal imbalance arising from inadequate fiscal capacity to ensure the provision of certain minimum levels of essential public services in subcentral units. In India, Article 280(3)(a) and (b) of the ...

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