Discuss the significance of Article 275 in the context of grants to states. How have recent changes in grant mechanisms affected state finances and equity?

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Significance of Article 275

Article 275 of the Indian Constitution empowers the Union Government to provide grants-in-aid to states in need of financial assistance, particularly for implementing welfare schemes, maintaining essential services, and addressing developmental disparities. These grants support revenue-deficit states, promote balanced regional development, and enable equitable access to public services, thereby reinforcing fiscal federalism. Traditionally, grants under Article 275 were non-plan revenue grants, distributed based on recommendations of the Finance Commission.

Recent Changes in Grant Mechanisms

The 14th and 15th Finance Commissions introduced significant reforms in grant allocation. There has been a shift towards formula-based devolution, increased weightage for population, area, and fiscal capacity, and integration of performance-linked grants for outcomes in health, education, and infrastructure. While devolution to states has increased overall, conditionality in grants has grown, linking funds to specific reforms and compliance with fiscal prudence norms.

Implications for State Finances and Equity

The restructured mechanisms have improved predictability and transparency in state funding. Revenue-deficit states benefit from enhanced support, while better-performing states are incentivized through performance-linked grants. However, disparities remain for smaller states and those with limited administrative capacity, as conditionalities can delay fund utilization. Balancing autonomy with accountability is essential to ensure that grants under Article 275 continue to reduce regional imbalances without undermining state priorities.

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