For now, the spotlight is on a report by the Finance Commission, which decides on the distribution of central taxes and grants to India's 26 states. States collect less important levies such as sales tax and motor-vehicle tax. The wealth of a state is determined by a formula that includes per-capita income, population, land area, level of infrastructure development, tax effort and fiscal responsibility, with income by far the most important factor. This means that states with low economic growth and high population growth will continue getting a larger slice of the pie, while the fastest-growing states see their share shrink. The Financial Commission justifies the changes by pointing out that poorer states need a helping hand.
Poor states tend to have spotty tax collection and a hard time attracting investment.
Participants in the negotiations suggest that New Delhi will buy peace with rich states by setting up a special fund for the development of infrastructure. But this won't do anything to solve the underlying problem of balancing equity and efficiency. Moreover, what New Delhi faces is not just the issue of equity among states, but also of accelerating national growth. But China, which has its own regional economic disparities, is not a democratic federation. Yadav, the political scientist, adds that the first murmurs of dissent against economic reform have begun, especially in the Hindi heartland.