Sixty-Eight Paise in the Rupee

Pritiraj BrahmaFounding Partner, Pritiraj & Partners · 8 March 2026

North-eastern and Himalayan states raise roughly a third of what they spend. The problem is not the dependence — it is that most of the money arrives with someone else’s conditions attached.

A state that receives two-thirds of its revenue from Delhi is not thereby a weak state. A state that cannot tell in March what it will receive in June is a state that cannot plan — and planning, not money, is what the Northeast is short of.

The standard conversation about the Northeast’s finances begins and ends with dependence. PRS Legislative Research’s State of State Finances for 2025 estimates that north-eastern and Himalayan states will receive 68 per cent of their revenue receipts as central assistance in 2025-26. The figure is usually deployed either as an indictment of the region’s economies or as a defence of its special status. Both readings miss what actually constrains delivery in Kohima, Aizawl and Imphal.

Dependence at that scale is a structural fact of small, sparsely populated, difficult-terrain economies, and no plausible reform changes it within a decade. What can change — and what determines whether a state government can build a road, staff a hospital or commit to a five-year cadre plan — is the composition and predictability of the money. On both, the Northeast is served worse than its dependence alone would require.

Five findings anchor this analysis:

1. The dependence is deep and long-standing. PRS estimates NEH states will draw 68 per cent of revenue receipts from central assistance in 2025-26. Across earlier editions, PRS has consistently found Bihar, Jammu and Kashmir and the north-eastern states raising more than 60 per cent of revenue from devolution and grants combined.
2. The own-tax base is genuinely thin, not merely unexploited. PRS records own tax revenue at 3 to 4.2 per cent of GSDP for Mizoram, Nagaland and Sikkim, against 6 to 8 per cent for most states. The all-states figure was 6.4 per cent of GSDP in 2023-24 actuals and is estimated at 6.8 per cent for 2025-26.
3. The composition differs sharply within the region. PRS finds the share of untied tax devolution higher for Arunachal Pradesh, Assam, Mizoram and Sikkim, while the share of grants — much of it tied — is higher for Jammu and Kashmir, Manipur, Nagaland and Tripura. Two states with identical headline dependence can have very different fiscal freedom.
4. These are consumption economies, and GST reflects it. For Manipur, Mizoram and Nagaland, revenue from IGST settlement accounted for over 70 per cent of SGST revenue (PRS, drawing on the GST portal, CAG and state budgets). Under a destination-based tax, revenue accrues where goods are consumed — so the tax base grows with imports into the state, not with production inside it.
5. The grant component is the volatile component. PRS recorded grants from the Centre estimated 8 per cent lower in aggregate in 2023-24 against the 2022-23 revised estimate, and 2 per cent lower in 2024-25. Devolution moves with the divisible pool; grants move with decisions.

Dependence is a fact, not a diagnosis

A state of two million people spread across mountain districts will not fund a modern health system from stamp duty and motor vehicle tax. Sub-national fiscal equalisation exists precisely so that citizenship does not become a lottery of geography, and India’s Finance Commission architecture, whatever its flaws, does this work at a scale few federations attempt.

The useful question is therefore not how much comes from Delhi, but what arrives, when, and with what attached. On that question the region’s experience diverges from the national conversation about federal transfers, which is dominated by the tax-share arithmetic of the large states.

Untied money and tied money are not the same money

Tax devolution is untied: a state may spend it on its own priorities. Grants divide into unconditional forms — revenue deficit grants, for instance — and conditional ones, tied to centrally sponsored schemes with prescribed components, matching shares, and reporting formats.

For a state where grants dominate, the practical consequence is that the state budget becomes a compliance document. Departmental capacity is drawn towards meeting scheme conditions rather than towards the state’s own diagnosis of its problems. A hill state may need lower-volume, higher-frequency health facilities than a scheme designed around population norms allows; the money is available for the design that does not fit, and unavailable for the one that does. Matching-share requirements compound this, because the state’s scarce untied rupee is drawn into unlocking the tied one.

This is why the aggregate 68 per cent obscures more than it reveals. Nagaland and Mizoram are both heavily dependent. Mizoram’s dependence is weighted towards untied devolution; Nagaland’s towards grants. Those are materially different degrees of self-government, and no published table puts them side by side.

A consumption base cannot be widened by exhortation

The recurring advice to north-eastern states — raise your own revenue — assumes a base that can be taxed harder. The IGST settlement figures suggest the base is largely imported consumption. Raising own-tax collections in that setting means taxing goods brought in from outside, which is precisely what GST already does and remits. There is real headroom in non-tax revenue — in several of these states electricity distribution remains a departmental activity, so tariffs and collections sit inside government accounts rather than in a corporatised utility with published finances — but that is a governance reform measured in years, not a revenue lever available this budget.

What dependence does to the capacity to plan

The firm’s consistent position is that India’s delivery failures are failures of institutional design. Here the design flaw is a timing mismatch. State governments must sanction posts, award contracts and commit to multi-year capital works. The most variable part of their revenue — grants — is the part they learn about latest and can predict least. The rational response of a finance department facing that uncertainty is to under-commit: to leave posts unsanctioned, to prefer small annual works to large multi-year ones, to spend late in the year. Every one of those responses reads, from Delhi, as absorptive incapacity. Much of it is prudence.

The counter-case, honestly stated

Three objections deserve a hearing.

First, conditionality exists because unconditional transfers to weak-accountability states have a poor record. Tied grants are the instrument by which national minimum standards — immunisation, school infrastructure, sanitation — were actually raised in states that would not have prioritised them. Loosening conditions is not costless.

Second, the region has not been static. PRS has recorded higher post-GST revenue growth for Manipur and Nagaland than they achieved from the taxes GST subsumed, and Mizoram eliminated the revenue deficit it carried in the Thirteenth Finance Commission period. The picture of unrelieved fiscal stasis is inaccurate.

Third, some of the volatility is arithmetic, not caprice. Revenue deficit grants under any Finance Commission award are designed to taper, and states knew the taper was coming. Complaining about a scheduled reduction is not the same as complaining about unpredictability.

What we would do

1. Publish a tied-versus-untied split for every state, annually, in one table. The Union Budget and Finance Commission documents contain the components; no single published statement gives a chief secretary the ratio for her own state against comparators. This is a formatting decision, not a policy one, and it would change the quality of the debate immediately.
2. Issue three-year indicative grant envelopes to NEH states, with a stated tolerance band. Not a guarantee — an indication, published, with the band inside which the final number will fall. A state that knows the floor can sanction against the floor. This costs the exchequer nothing and buys years of planning capacity.
3. Allow terrain-adjusted design substitution within schemes. Where a state can demonstrate that the prescribed facility norm is unsuitable to its settlement pattern, permit a substituted design at the same cost, approved once, with outcomes reported against the same indicator. The scheme’s purpose survives; the template does not.
4. Corporatise and publish the accounts of departmentally run utilities. Where electricity distribution remains a government department, the state cannot see its own subsidy or its own collection efficiency. Separate accounts are the precondition for every subsequent reform, and the region’s largest untapped non-tax revenue sits there.
5. Report absorption honestly, in both directions. If a state spends late because funds released late, publish the release date alongside the utilisation figure. Delivery accountability is meaningless when only one party’s timeliness is measured.

Sixty-eight paise in the rupee will come from Delhi for the foreseeable future. Whether those paise build anything depends less on their number than on whether a state government can know, in advance, that they are coming.