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Equalizing Health and Education : Approach of the Twelfth Finance Commission


  • D. K. Srivastava



Service standards in the provision of health and education in the states in India are low on average and also characterized by large inter-state disparities. These disparities are due to differences in fiscal capacity, differences in revenue effort and differences in priority accorded to the concerned sectors. The transfers from the central to state governments in many federations are guided by the equalization principle. Two important examples are Canada and Australia. When unconditional transfers are made, equalization transfers aim to neutralize deficiency in fiscal capacity but not that in revenue effort. Sometimes adjustments affecting cost and need factors may also be accommodated. Both in Canada and Australia, apart from general purpose and unconditional transfers, there are also specific purpose transfers. Considering the fact that it is important not only to improve the average levels of provisions of health and education services, but also to reduce disparities across states, the Twelfth Finance Commission has recommended special grants for health and education to selected states. In determining these grants, the TFC had kept the equalization principle in perspective and has not underwritten deficiency in expenditure if it arises because states accord less than average priority to the concerned sector. Recommended grants however only partially meet the requirement of resources for these sectors. For meeting the needs fully, much larger amounts would be involved. TFCs initiative should be taken only as a beginning that requires supplementation by plan grants. After gaining experience in implementing these grants, larger grants and a more comprehensive approach can be developed.

Suggested Citation

  • D. K. Srivastava, 2006. "Equalizing Health and Education : Approach of the Twelfth Finance Commission," Finance Working Papers 22517, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:22517

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    References listed on IDEAS

    1. Singh, Nirvikar & Rao, Govinda, 2006. "Political Economy of Federalism in India," OUP Catalogue, Oxford University Press, number 9780195686937, June.
    2. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
    3. James M. Buchanan & Richard E. Wagner, 1970. "An Efficiency Basis for Federal Fiscal Equalization," NBER Chapters,in: The Analysis of Public Output, pages 139-162 National Bureau of Economic Research, Inc.
    4. Bird, Richard M., 1993. "Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 207-27, June.
    5. Ross Garnaut, 2002. "Equity and Australian Development: Lessons from the First Century," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 227-243.
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    More about this item


    Twelfth Finance Commission; health; education; equalization principle; India;

    JEL classification:

    • I00 - Health, Education, and Welfare - - General - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General


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