Misconceptions in Indian fiscal federalism

We examine common views regarding weakening of rights of states and finds them to be misconceptions Indian states get more resources and freedoms than in most federal countries. Some fiscal restraints on states borrowing are necessary to preserve overall macroeconomic stability and are found in all federal structures. Although lower per capita income states are awarded more of Finance Commission rule based transfers, more efficient states get more of conditional grants, as better facilities allow better utilization. Since they go more to better performing states conditionalities induce better performance helping states escape low level traps and distorting choices such as in the electricity sector or in water supply. They have improved the quality of state spending. They should therefore be used more, along with raising voter awareness and convergence to best practices, for states to deliver on their responsibilities.