Published Online:April 2026
Product Name:The IUP Journal of Applied Economics
Product Type:Article
Product Code:IJAE010426
DOI:10.71329/IUPJAE/2026.25.2.5-29
Author Name:D K Srivastava, Muralikrishna Bharadwaj, Tarrung Kapur and Ragini Trehan
Availability:YES
Subject/Domain:Economics
Download Format:PDF
Pages:5-29
This study examines the fiscal transfer allocations from the central government and explores their association with per capita GSDP across Indian states. For this purpose, an entropy-based index of inequality, also called Theil’s inequality index, is utilized. The period of study is from 2000-01 to 2023-24. Juxtaposing the profiles of equalizing fiscal transfers from the center and the pattern of interstate per capita income inequality, opposite trends of progressively increasing interstate inequalities in the former and progressively increasing inequalities in the latter are noticed. These opposite trends are explained by the movement of capital and human resources across states driven by market forces. There are a few policy instruments that can reverse the trend of growing interstate income inequality. One such instrument is center’s allocation of its own infrastructure spending and the location of central public sector enterprises.
Inequalities in per capita income and fiscal capacities across states in India and the exercise undertaken by India’s Finance Commission (FC) to allocate resources across states with a view to ensuring equalized standards in public provision of public and merit goods across states, are interlinked. Fiscal capacities of states depend on their per capita revenue bases,