HORIZONTAL DEVOLUTION : HAVE THE FINANCE COMMISSIONS DELIVERED?

Along the principles of fiscal federalism, India follows a mechanism wherein the tax collected by the centre is redistributed to the states in the form of tax devolutions and other Centre-State grants. The criteria  for the distribution are laid down every five years by the Finance Commission. These criteria , based on the twin objectives of achieving equity and efficiency across states, keep changing with every Finance Commission. We argue that the change in criteria by the previous  four Finance Commissions seems to be targetted towards the maintenance of status quo in the inter se shares determined through their devolution mechanisms. At the same time, the Finance Commissions seem to have failed to adequately address the twin objectives. The Fourteenth Finance Commission, in particular, appears to have come up short  on both fronts. Hence, a change in approach would be necessary  to  effectively direct future horizontal devolution of resources to the states.