India's political economy challenge is to contain ‘transfer union’ discord
Although all federal states have some mechanisms for the transfer of resources from richer to poorer constituents, if the perception grows that the richer states are subsidizing profligacy or incentivising populist policies in the poorer states, the union could be politically destabilized. Such perceptions are gaining currency both in the Eurozone and in India.
In the Eurozone, there is rancour between the poorer southern states and the richer northern ones. The phrase ‘Transfer Union’ is often used to describe transfers of resources from the latter to the former.
Although the Union of India is structurally a very different kind of federation than the Eurozone, there is nevertheless a similar perception in the southern and western states that revenues generated from their taxpayers are being transferred to northern and eastern states. They have therefore been compelled to borrow more than what is necessary for their own development.
What does Indian data show?: The table alongside aggregates data for direct (personal and corporate) and indirect (goods and services) tax collections, their share in the common tax pool and the public debt of 21 major Indian states and Union territories. Since the states vary in size, they have been brought on the same level by showing the numbers on a per-capita basis.
The averages of states aggregated into the northern and eastern region (Uttar Pradesh, Rajasthan, Madhya Pradesh, Chhattisgarh, Bihar, Orissa, Jharkhand, West Bengal, Assam) on one hand, and the southern and western region (Maharashtra, Gujarat, Karnataka, Goa, Andhra Pradesh, Telangana, Tamil Nadu, Kerala and HDPC) on the other, are shown in the table. ‘HDPC’ is an acronym for Haryana, Delhi, Punjab and Chandigarh that
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