Key Points
Although all federal states have some mechanisms for the transfer of resources from richer to poorer constituents, if the perception grows that the richer states are subsidizing profligacy or incentivising populist policies in the poorer states, the union could be politically destabilized..
In the Eurozone, there is rancour between the poorer southern states and the richer northern ones..
Although the Union of India is structurally a very different kind of federation than the Eurozone, there is nevertheless a similar perception in the southern and western states that revenues generated from their taxpayers are being transferred to northern and eastern states..
The averages of states aggregated into the northern and eastern region (Uttar Pradesh, Rajasthan, Madhya Pradesh, Chhattisgarh, Bihar, Orissa, Jharkhand, West Bengal, Assam) on one hand, and the southern and western region (Maharashtra, Gujarat, Karnataka, Goa, Andhra Pradesh, Telangana, Tamil Nadu, Kerala and HDPC) on the other, are shown in the table..
Third, unlike the European Monetary Union, the Indian version of the Transfer Union does not entail transfers from richer southern states and western States to the poorer north and east, but from the two surplus regions to the central government in Delhi that collects most of these taxes..
