Thursday, September 9, 2010

Indian public finance: How is revenue shared between the union & the states?

The States of India account for about 55 per cent of the combined expenditure of the Union and the States, but collect only one-third of the combined tax revenues and 40% of the combined non-tax revenues. The gap in revenue and expenditure of the states is made up by transfers
from the union. The table shows the states 'own revenue' sources as a % of total revenue receipts ( own revenue + transfers from the union). The position of the states has actually deteriorated from the 1950's increasing their dependence on the center. Own revenues were >86% of total revenue then. At present, own revenues are around 58% of total revenues.
The asymmetry between the states and the union in revenue resources and revenue expenditure - termed the 'vertical imbalance' - has repercussions beyond finance. 
For more, see this India Together piece.