States’ Share in Central Taxes

India is a large country with a variety of fiscal and regional development programmes which are introduced time to time to promote regional equity and spatial development. In federal fiscal set-up, resources are generally assigned more to the Central Government on grounds of both equity and efficiency whereas States together with the local governments have the larger responsibilities. Therefore, ‘the Centre-State relations are crucial to the preservation of the unity and integrity of India within the framework of its linguistic, cultural and other dimensions'.

The main thrust of development strategy has to focus on regional policies and the mechanisms of financial transfers so that lagging States are provided fiscal resources as per their fiscal needs. In view of the noteworthy fiscal devolution and transfers have significant implications for balanced regional development in India in an environment of economic reforms and globalization. Central transfers constitute a significant part of State finances.