Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India? (Answer in 250 words)

- Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India? (Answer in 250 words)
Introduction
Centre-State financial relations in India have evolved from a centrally dominated planning framework to a more cooperative and decentralized fiscal structure, balancing national objectives with regional needs. Planned development since Independence has been the key driver of this evolution.
Body
1. Early Phase – Central Dominance: During the era of Planning Commission (1950–2014), the Centre controlled resource allocation through Five-Year Plans, Centrally Sponsored Schemes (CSS), and discretionary grants. States were fiscally dependent on central transfers for developmental expenditure.
2. Institutional Framework: Financial devolution operated through Finance Commissions (Article 280), Planning Commission, and Inter-State Council. The Finance Commissions determined vertical (Centre-State) and horizontal (inter-state) distribution of resources, ensuring equity.
3. Shift after 1991 Reforms: Liberalization increased States’ responsibility in attracting investment and managing finances. Fiscal Responsibility and Budget Management (FRBM) Acts promoted fiscal discipline, while competitive federalism gained prominence.
4. Recent Reforms and Trends:
- Abolition of the Planning Commission (2014) and creation of NITI Aayog enhanced cooperative federalism, focusing on consultation rather than control.
- Fourteenth Finance Commission increased States’ share in divisible taxes from 32% to 42%, strengthening fiscal autonomy.
- GST implementation (2017) restructured indirect taxation, creating a shared tax regime, though concerns about delayed compensation weakened State fiscal independence.
Conclusion
Recent reforms have promoted greater fiscal federalism through increased devolution and cooperative mechanisms, yet challenges like GST dependence, shrinking grants, and fiscal imbalances persist—calling for a renewed balance between autonomy and coordination in India’s fiscal architecture.