Financial Relations in Federalism

Intergovernmental financial relationship in a federation is a critical matter. It touches the very heart of modern federalism, as the way in which this relationship functions, affects the whole content and working of a federal polity. It is an difficult exercise to create a viable scheme of intergovernmental financial relationship in a federal polity as federalism has its own special and peculiar problems. A sound federal system envisages that financial resources between the centre and the States are allocated in such a way that there exists a balance between the functions and resources at each governmental level. Absence of balance at any government level is bound to lead to bad government and jeopardise the smooth functioning. Usually, the Centre in spite of its own heavy commitments on defence and other services, does emerge with a much stronger financial capacity than the units which always find their resources inadequate to match their responsibilities. In this context, Indian Constitution creates a fine balance between the Centre and states.

Author:
Dr. Sanjay Kumar Pandey, Associate Professor & Director CCJR, Unitedworld School of Law (UWSL)

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