Fifteenth Finance Commissions and the Challenge of Horizontal Equity: A Review

Abstract

India is a country where large scale inter-states imbalances exist. This is either due to non- availability of infrastructural facilities and differential factor endowments, inherent concentration of development in some regions or due to increasing centralization of revenue and increasing decentralization of responsibilities which is rooted in the structure of its federation. To offset fiscal disadvantages resulting from regional imbalances, a federal democracy requires institutional arrangement to channelize flow of funds from the Centre to the states in an orderly and even handed manner. In line with this, the current paper examines the recommendations of last two Finance Commissions from the perspective of horizontal equity over the span of a decade.  The chapter is divided into six sections besides the introduction. Section II deals with the distribution criteria adopted by two Finance Commissions and their impact on transfers. Section III examines the recommendations of Fifteenth Finance Commission and its impact on inter-state equity. Section IV evaluates the impact of transfers made over the span of last two Finance commission and the progressivity analysis. Section V presents the conclusion of the chapter.