Fiscal federalism in India is often impaired by structural revenue asymmetries arising from state bifurcations. Analyse with reference to Andhra Pradesh's fiscal trajectory since 2014.

Q. Fiscal federalism in India is often impaired by structural revenue asymmetries arising from state bifurcations. Analyse with reference to Andhra Pradesh's fiscal trajectory since 2014. (15 marks, 250-350 words)

Fiscal federalism presumes that states can match their constitutional expenditure responsibilities with a commensurate revenue base. Bifurcation ruptures this balance: the successor state inherits obligations without proportionate revenue-generating assets. Andhra Pradesh, reorganised under the AP Reorganisation Act, 2014 [1], illustrates how such asymmetry converts a one-time political division into prolonged fiscal stress.

Anatomy of the asymmetry - Revenue base loss: the residual state lost Hyderabad, its revenue-rich urban and services hub, while retaining a large share of liabilities — a structural, not managerial, deficit. - Committed expenditure rigidity: salaries, pensions and interest remained largely intact. In 2026-27, interest payments alone absorb about 16% of revenue receipts and pensions another 10% [2], compressing discretionary fiscal space. - Comparable precedent: Bihar after the 2000 separation of Jharkhand's mineral revenues shows this is a recurring federal design problem, not a state-specific failure.

Consequences for fiscal federalism - Persistent revenue deficit meant borrowing financed current consumption, pushing the fiscal deficit to 5.11% of GSDP in 2024-25 — above the FRBM ceiling. - Constrained autonomy: under Article 293(3), an indebted state needs Union consent to borrow; the Net Borrowing Ceiling thus makes AP's fiscal choices conditional on central approval. - Crowding out of capital formation: NITI Aayog's Fiscal Health Index found AP, alongside Punjab, West Bengal and Rajasthan, devoting only ~10% of developmental expenditure to capex, against 27% for leaders like Odisha [3].

Signs of correction - The 2026-27 Budget projects the fiscal deficit at 3.8% of GSDP and revenue deficit at 1.1%, with capital outlay raised to ₹48,698 crore — a 47% jump over revised estimates [2], directed at irrigation, water supply and urban development.

AP's trajectory shows that consolidation is achievable, but only after a decade of avoidable stress. The remedy lies in institutionalising the response: reorganisation Acts should embed transitional revenue-sharing, and Finance Commission awards should explicitly weight bifurcation-induced asymmetry, as RBI's state-finance reviews consistently recommend [4]. Genuine cooperative federalism requires that constitutional reorganisation be matched by fiscal reorganisation.

(~330 words)

Sources: 1. The Andhra Pradesh Reorganisation Act, 2014 (Act No. 6 of 2014), India Code — statutory basis of bifurcation and apportionment of assets/liabilities 2. Andhra Pradesh Budget Analysis 2026-27, PRS Legislative Research — deficit ratios, committed expenditure shares, capital outlay figures and sectoral priorities 3. Fiscal Health Index 2025, NITI Aayog — capital expenditure share of AP versus leading states 4. State Finances: A Study of Budgets, Reserve Bank of India — annual assessment of state debt sustainability and consolidation