Fiscal Federalism and Interplay of Redistribution: A Study of Telangana State’s Finances, Capacity and Governance

Abstract

Indian Fiscal Federalism is at a crossroads. The tussle between the Centre and the state governments has increased due to centralised policy capacity, devolution of redistribution, increasing competition among states, and reduced role of statutory financial transfers despite a strong tradition of Finance Commissions and recommendations for distribution of resources. Political Economy of Fiscal Federalism has increased neoliberal pressures to reduce state’s capacity and socialise private gains is now combined with developmentalism. The reduced role of the strong Centre has become a weak guide to states. The lack of accountability and uncertainty in intergovernmental financial transfer system has become problematic for Telangana. Despite, the developments witnessed newly formed Telangana State in use and abuse of the state’s coffers, the problem area is not an island, but integrated with the Central government finances. Despite arguments for centralisation and decentralisation, the real tussle between the Centre and States is now about policy and anti-policy.