Financial Relations

India’s financial system relies on a balanced partnership between the Centre and State governments, as laid out by the Constitution. Both levels have distinct powers over taxes, borrowing, and expenditures. To ensure fairness in resource allocation, the Finance Commission plays a key role in managing financial relations.

The introduction of GST created a unified tax system, reshaping the way revenue is shared between the Centre and States. This shift, while streamlining taxes, has led to new debates about equitable resource distribution.

In this guide, we simplify the key aspects of Centre-State financial relations, highlighting the role of the Finance Commission, the impact of GST, and the ongoing challenges in maintaining fiscal balance. Whether you’re new to economics or simply curious, this overview provides a clear understanding of how India’s financial framework operates.