Here is why the Centre should hand over a lower share of taxes to states

The Centre should share only 25 per cent of tax revenues with states, and the states should be allowed to impose their own income tax

A few days ago, the think tank PRS Legislative Research published detailed statistics about state finances. It’s not a comforting picture. The states have huge deficits in all the usual measures because they are spending far in excess of their incomes.

This is not a new development. Since independence, they have always been in a fiscal hole. This suggests that there is something structurally wrong with our financial arrangements. Otherwise, no problem can last this long.

The received wisdom is that the Centre is to blame for the poor condition of states’ finances. But that argument doesn’t wash because it