“Resource Sharing between Centre and States and Allocation across States: Some Issues in Balancing Equity and Efficiency”

The possibility of fiscal imbalance is well recognised in the Indian Constitution which provides for an institutional mechanism to tackle the imbalance in the form of the Finance Commission (FC) which makes recommendations on the magnitude of transfer of resources from the Centre to the states for a period of 5 years. [...] th The 14 FC also noted that it was not appropriate to amend the constitution to include the non- divisible pool of resources (cesses and surcharges) given the experience so far and said the alternate option to addressing this concern of the states of including cesses and surcharges as part of the devolution was to compensate States by increasing the share of the divisible pool. [...] The distance was calculated between the per capita income of a state and the weighted average of the states with th the three highest per capita income (11 FC); between the average per capita GSDP of each of the 28 states for the last 3 years and the weighted average of the states with the three highest per th capita income (12 FC); between the average per capita GSDP of each of the 29 states for. [...] Index of Infrastructure th The 12 FC states that the Index of infrastructure refers to “the relative availability of economic and social infrastructure in the state” and additionally mentions that the index is inversely proportional to the share of the state. [...] th The 14 FC argued that “Forests and the externalities arising from them impact both the revenue capacities and the expenditure needs of the States” and believed that there needs to be a compensation for the cost disability and encouragement to the states regarding the maintenance th and additions to green cover.