Horizontal Imbalances in India: Issues and Determinants

Horizontal imbalances (measured by the coefficient of variation in own revenue as a percentage of total expenditure) persist in India even today mainly due to a host of economic and political factors. Variations in tax base, tax effort, infrastructural facilities - both physical and social - and political uncertainty are found to be the important determinants of horizontal imbalances. The dispersion in horizontal imbalance can only be reduced through all-round development of the poorer states. General-purpose transfers from the centre are essential for horizontal equity but they cannot ensure a permanent solution.