Horizontal devolution: Have the finance commissions delivered?

Abstract

In this study, we analyse the performance of the past four Finance Commissions on their stated objectives of achieving equity and efficiency in the inter se shares to states via their respective horizontal devolution mechanisms. The results indicate that the stated objectives have not been adequately addressed in the recommendations, and the constant changing of criteria has mainly served to maintain stability in the inter se shares over the past 20 years. Additionally, we argue that the methodology used for fiscal discipline needs to be revisited and a more comprehensive, multi-dimensional approach may be considered in the future.