Tuesday, May 13, 2014

Dependence of States on Central Transfers: State-wise Analysis

NIPFP Working Paper 137

C. Bhujanga Rao and D. K. Srivastava
May 2014


This paper examines the dependence of states on central fiscal transfers. The pattern of dependence of states on central transfers is studied with respect to five groups of states, namely, high, middle and low income general category states and two groups of special category states categorized into high and low income states. We make a distinction between transfers that are in the form of an entitlement like states’ share in central taxes or statutory grants vis-a-vis transfers that are discretionary and depend on centre’s decisions. In terms of groups of states, the extent of dependence is relatively quite high for the special category states and the low income states. The extent of dependence was lowest during the period covered under the Tenth Finance Commission period. It has since increased, for all states considered together, by about 3.5 percentage points, from 37.4 percent to 40.9 percent of states’ revenue receipts. This increase comes both from entitlement transfers and discretionary transfers to the extent of 2.1 and 1.3 percentage points, respectively.