India's federal economic structure produces uneven regional development, where high-performing states subsidise lagging ones without proportional returns. Critically examine in the

India's fiscal federalism distributes resources through tax devolution, grants, and Centrally Sponsored Schemes — creating structural tensions between horizontal equity and fiscal efficiency.

Where the Claim Holds

• High-performing states contribute disproportionately to central tax pool → receive less proportionally through devolution
• Finance Commission criteria reward backwardness → population, area, forest cover weighted → fiscal performance underweighted
• Tamil Nadu: 10.83% real GSDP growth (2025-26), 13.35% of India's manufacturing GDP → yet Sixteenth Finance Commission devolution share broadly unchanged
• Debt-GSDP at ~26% → infrastructure ambition constrained by fiscal transfer inequity

Where the Claim Oversimplifies

• CSS framework → states compete on performance → high-capacity states access funds more effectively
• Grants-in-aid partially address specific developmental gaps → not purely backwardness-rewarding
• Cooperative federalism gains real → PMGSY, Smart Cities, PLI benefits flow to performing states

Verdict Subsidisation is structurally real — but framing it as purely one-directional misses CSS competitiveness gains. Devolution formula reform introducing performance-linked components would resolve the horizontal equity vs. fiscal efficiency tension without dismantling redistribution architecture.

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