Fiscal Federalism

Why it matters

• It balances the vertical fiscal gap between the central government's revenue-raising capacity and the states' expenditure requirements.
• It addresses horizontal fiscal disparities by redistributing resources to ensure equitable development across diverse regions.
• It promotes sub-national autonomy while maintaining national macroeconomic stability through coordinated fiscal policies.
• It provides a structured mechanism for inter-governmental transfers to address regional variations in public service delivery.

How it is asked

Focus on the constitutional provisions for resource allocation, the role of the Finance Commission in determining devolution, and the challenges posed by centrally sponsored schemes in the context of cooperative and competitive federalism.