Fiscal Federalism
Centre-State Financial Relations
Fiscal federalism in India refers to the division of financial resources and revenue-raising powers between the Centre and states. The Constitution originally envisaged a strong Centre with revenue buoyancy (income tax, customs, central excise) while states depended on grants and transfers. The Finance Commission (Article 280) is the primary constitutional mechanism for vertical devolution (Centre to states) and horizontal distribution (among states). Pre-GST, states had significant independent revenue sources in VAT, entry tax, and levies on alcohol and petroleum. GST's absorption of most state taxes has made states structurally more dependent on the Centre for revenue certainty.
- Finance Commission: Constitutional body under Article 280; recommends tax devolution and grants
- 15th Finance Commission: Recommended 41% vertical devolution of central taxes to states (reduced from 42% because of bifurcation of J&K)
- State Consolidated Fund: State revenues flow into the Consolidated Fund of States (Article 266)
- State's own revenues (post-GST): SGST, stamp duty, state excise (alcohol), land revenue, vehicle taxes, electricity duty
- Entry 8, State List: Intoxicating liquors (alcohol for human consumption) remains with states — a key residual revenue source
● Tracked since February 20, 2026 · last seen July 29, 2026 · updates as the daily brief publishes