Federal Finance: An Alternative Basis for Allocation of Resources

Are states justified in their claim that the transfer of resources to them has been inadequate? Is it true that some of the states have been discriminated against in the matter of allocation of resources out of the divisible pool? Is there any secular pattern in the process of discrimination experienced by such states? Or, has the inadequate transfer at one point in time been compensated by excess transfer at other/s point/s in time? Can we evolve a criterion to identify states that have been discriminated against in (a) the absolute sense and (b) in the relative sense: Can we make a conjecture about the consequences of inadequate transfers on the performance of states? These are some of the central concerns of this study. In analysing these, the study goes beyond the provisions of the Constitution. It thus seeks to evolve alternative criteria for evaluating fairness of transfers to states in accordance with recommendations of the Finance Commissions. The primary focus of the study is on the identification of desired transfers under alternative assumptions and, only to a limited extent, on the justification of the divergence between the desired and the actual transfers.
The study relates to a time- period of two decades. Results are, however, presented for five different points in time, in order to provide a shaper focus.