Fiscal Devolution in India : An Overview

Fiscal federalism is the most popular form of organization of governments for the provision ofpublic goods. Organization of a multitier governmental structure requires assignments ofresources and responsibilities to each tier. The theoretical framework of fiscal federalismprovides the principles for addressing this assignment issue. Inter-governmental transfersconstitute an important policy instrument in fiscal federalism that can serve a number ofdifferent functions. The evolution and development of fiscal federalism in India demonstratesfiscal imbalances that are to be addressed with effective policy instruments. Fiscal transfersto the states and local governments are generally governed by Central Finance Commissionwhile the plan grants are channelized by mainly Planning Commission. Thus, both the bodiesplay crucial role in fiscal devolution and addressing the issues of regional equity. Presentpaper purports to examine the criterion of fiscal devolution, adopted by different FinanceCommissions in India. The paper highlights the emerging trends and perspective pertainingto fiscal devolution in India