Background
Overview
Fiscal federalism in India is the system of financial resource distribution and management between the Union and State governments, enshrined in the Constitution. It aims to address vertical imbalances (Centre having more revenue sources, States more expenditure responsibilities) and horizontal imbalances (disparities among States) to ensure equitable development and efficient governance.
Fiscal federalism is a fundamental aspect of India's federal structure, influencing governance, economic development, and social equity across states. Understanding its dynamics, challenges, and reforms is crucial for analyzing policy outcomes, constitutional challenges, and regional disparities.
Key facts
Article 280
Mandates the President to constitute a Finance Commission every five years or earlier.
Seventh Schedule
Divides legislative powers, including taxation, into Union List, State List, and Concurrent List.
Vertical Imbalance
Disparity between the revenue-raising capacity and expenditure responsibilities of the Centre and States.
Horizontal Imbalance
Disparities in fiscal capacity and public service provision among different States.