Balancing for fiscal federalism

The 16th Finance Commission has done well to lean on the side of prudence and justice in its award

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Federalism is one of the key tenets of our constitutional framework and national unity. Its fiscal component, which determines how resources and responsibilities are shared among the Centre and the states, is critical to preserving its sanctity. Fiscal federalism debates have become more acrimonious over time thanks to the growing divergence in India’s demographic and economic fortunes. States which have done well on economic growth in the medium term have also done well on population stabilisation. This created a situation where they increasingly felt shortchanged as their demographic (out)performance was actually taking away the fruits of their economic performance by giving less to them in central taxes. This divide had also become congruent wit