Phase IFoundation
Background
Overview
This concept is fundamental to understanding the financial architecture of India, the autonomy of states, and the implications of central legislation on state finances and development, directly relevant to GS2 (Polity) and GS3 (Economy).
Fiscal federalism refers to the division of financial powers and responsibilities between different levels of government (Centre and States) in a federal system. Centre-State financial relations govern the mechanisms of revenue sharing, grants-in-aid, and borrowing powers, aiming to address vertical and horizontal fiscal imbalances and ensure equitable development.