In the context of fiscal federalism in India, what constitutes the primary source of revenue for the Government of Arunachal Pradesh to finance its annual state budget?

💡 Solution & Explanation

Due to a narrow internal tax base and limited large-scale industrial manufacturing, the budget of Arunachal Pradesh relies heavily on central tax devolution recommended by the Finance Commission and central grants-in-aid to finance its developmental and administrative expenditures. State-own tax revenues primarily comprise excise duties, state sales tax, and motor vehicle taxes. Enhancing non-tax revenues through sustainable hydropower royalties and eco-tourism is a persistent policy objective. Central fiscal transfers remain indispensable for maintaining public service delivery in the state.