Assess the economic rationale behind the horizontal tax devolution criteria adopted by recent Finance Commissions in India. Which parameter typically commands the highest weight in distributing tax revenues among states?

💡 Solution & Explanation

Income distance receives the highest weight in the horizontal devolution formula utilized by recent Finance Commissions to ensure progressive transfers that favor lower-income states. Income distance is measured as the difference between the per capita income of a benchmark state and that of the respective state. Other criteria like population, area, forest cover, and demographic performance are assigned lower relative weights.