Debating Contribution vis-à-vis Equity Principle in Tax Sharing: A Review of Recommendations of the Finance Commission of India

Abstract

This article discusses the objectives of the Finance Commission of India since inception, within the ambit of critical issues in public finance. Amidst increasing political tensions between the central and state governments in India and waning trends in single party majority at the Centre, the evolution of tax sharing arrangements are critical indi- cators of a functional federal structure. The article compares various objectives put forth by the Finance Commission and evaluates observed conditions in four important states in the country. We carefully evaluate if the recommendations of the Finance Commission have influenced the degree of industrialization in these states.