Vertical and Horizontal Devolution
Principles and Controversies
Devolution of taxes from Centre to states operates along two dimensions: vertical (how much the Centre shares) and horizontal (how that share is distributed among states).
- Vertical devolution: Percentage of divisible pool shared with all states. Current: 41%. States have consistently demanded 50%, arguing that they bear the majority of welfare spending but have limited own revenue.
- Horizontal devolution: Allocation among states based on a formula. 15th FC criteria (and their weights): Income distance (45%), Population-2011 (15%), Area (15%), Forest and ecology (10%), Demographic performance (12.5%), Tax effort (2.5%).
- 16th FC horizontal formula change: "Tax and fiscal effort" parameter removed; replaced by "GDP contribution" (10%) — implicitly benefiting richer, larger economies (UP, Maharashtra, Gujarat) at the expense of smaller or poorer states.
- Southern states' grievance: States like Tamil Nadu and Kerala achieved population stabilisation early (based on 1971 census family planning performance), meaning 2011 census data gives them smaller population weights than northern states that grew faster — effectively penalising successful demographic transition.
- Centralisation vs decentralisation tension: States argue that conditional grants and centrally sponsored schemes (CSS) reduce their fiscal autonomy — they must match central funding and implement central design, limiting innovation.
● Tracked since February 02, 2026 · last seen February 08, 2026 · updates as the daily brief publishes
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