Kaleidoscope of Fiscal Federalism and Social Sector in India

India has witnessed an impressive growth performance since market-based reforms introduced in 1991, but its regional spread has been uneven. Fiscal federalism is a fundamental aspect of India’s governance structure, shaping the distribution of financial resources and responsibilities between central and state governments. Given the stark inequalities in the states’ ability to raise revenue, although, it is politically impossible to fully offset the disparities in revenue raising capacities of states, it is crucial to maintain basic standards for deserving services with significant externalities using special purpose funds. This paper analyses historical trajectories, current dynamics, and government focus on social sector in India. The study finds, although, government could not devolve the recommended share of net proceed of central taxes to states, but the difference in actual devolution of central taxes differs from recommended share of the net proceeds of central taxes during a period from 2010-11 to 2022-23 is statistically insignificant. The study also observes a notable decrease in the proportion of total expenditure allocated to social services after abolition of Planning Commission and subsequent creation of NITI Aayog.