Centre–State financial relations in India are shaped by the constitutional design that distributes taxing powers, expenditure responsibilities and institutional mechanisms for fiscal coordination between the Union and the States. The Constitution assigns the Union subjects of national importance such as defence, foreign affairs, railways and major taxes like income tax (excluding agricultural income), corporation tax, customs and excise on non-alcoholic goods. States are entrusted with responsibilities such as public order, police, agriculture, health, and local infrastructure, financed primarily through taxes on land, agricultural income, stamp duties, electricity, and sales tax on goods, along with duties on alcohol. This structural division creates an inherent vertical fiscal imbalance because revenue-raising powers are more centralised while expenditure obligations are more decentralised, making transfers