Address the disquiet among the states

The appointment of the 16th Finance Commission is expected shortly. The Finance Commission determines the vertical shares – how much of the Centre’s tax revenue should be given away to states – and horizontal shares – how to distribute that among states. The horizontal distribution formula of the Finance Commission is an important instrument for tackling inequalities across states. In one of his articles on inter-state inequalities, former RBI governor YV Reddy indicated that barring the Finance Commission, no other public institution focuses on the inequalities among states. Comparable data in the Finance Commission reports shows that ranks of low per capita income states such as Bihar, Jharkhand, Uttar Pradesh, Madhya Pradesh and Assam remained more or less the same in the last two decades.