Just funds alone won’t do: The big lesson from the Bihar story

Given how the chief ministers of both Bihar and Uttar Pradesh have been promising to support a coalition that grants them ‘special category’ status, FE did a little exercise to see just how important central transfers are. Not all transfers are outright grants, but we wanted to see the impact. Obviously the impact of central transfers—which includethe states’ share of central taxes—on poorer states like Bihar and Uttar Pradesh was going to be more than that for richer states like Gujarat and Maharashtra since, the way the transfer system is designed, the poorer states get more funds.

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