state’s limited revenue sources proved as a hindrance to the development

The state’s limited revenue sources proved as a hindrance to the development of effective federalism in the country and this needs to change. Substantiate. 

India is a "Union of states" with federalism as the most basic aspect of country's stable polity. However, resource wise the union government has far greater edge than the states.

1. All major taxes like income tax, wealth tax etc. are with Center.

2. Taxes governed by state are inelastic in nature and insufficient too.

3. States have complained that despite growth, the taxes received by states have not increased proportionately.

4. There is wide inter state disparity and politicization of in allotment of discretionary GRANTS by centre.

5.A rise in centrally sponsored schemes increases the administrative burden without rise in revenue.

6.States have no share in income from sale of spectrum etc.

7. Local government too are eating away state's resources.

For mitigating above grievances

1.Integration of market through GST is must which will have increased investment through FDI and Pvt. sector.

2. Rationalization the formula of tax distribution through transparency in functioning of finance commission and de-politicization of appointment.

3. Introduction of fixed percentage of flexi funds as per needs of state.

4. Centre should emphasize less on centrally sponsored schemes.

Fiscal federalism requires a broad framework of equity and justice. This should be followed through the lens of cooperative federalism to achieve growth and inclusive growth.