Centre-state financial relations and FRBM

India's federal finance divides revenue and spending between the Centre and the states, and bridges the gap with transfers. The Constitution assigns broad taxes (income tax, customs, corporation tax) largely to the Centre and many spending duties (health, education, agriculture, police) to the states, so states depend on shares of central taxes and grants. The Finance Commission (Article 280, every five years) recommends how central tax revenue is shared vertically (Centre versus states) and horizontally (among states). Worked example: if the divisible pool is 1000 and the states' vertical share is 41%, states together receive 410, which is then divided among states by a formula weighing population, income distance, area, forest cover and demographic performance.