Tax devolution and grant distribution to States in India : analysis and roadmap for alternatives

The paper attempts to analyse the impact of devolution of taxes and distribution grants by the Centre to the States in India by taking fourteen major States for the time period 1980-81 to 2006-07. The study focuses on the impact of inter- State distribution of Central grants and taxes. Analysis reveals that formula based tax devolution has been more equalising than grants. Study finds that there is need to explore alternative mechanisms. Keywords: Tax Devolution, Grant Distribution, Horizontal and Vertical Imbalance JEL Classification: JE6