Sixty-Eight Paise in the Rupee

Pritiraj BrahmaFounding Partner, Pritiraj & Partners · 8 March 2026

North-eastern and Himalayan states will draw 68 per cent of their revenue receipts from Delhi in 2025-26. The problem is not the dependence — it is that most of the money arrives with someone else’s conditions attached, and the most variable part is the part a state learns about latest.

ProvenancePublished 8 March 2026; revised 28 August 2026 to add a sixth finding and two figures. All fiscal figures are from PRS Legislative Research, State of State Finances, 2025, which draws on the GST portal, Comptroller and Auditor General accounts and state budgets. The tied-versus-untied classification in Figure 1 is PRS’s finding on the direction of tilt, not a measured ratio — no such ratio is published, which is the subject of the first recommendation. Own-tax shares for Mizoram, Nagaland and Sikkim are given as a range in the source and reproduced as such.

North-eastern and Himalayan states will draw 68 per cent of their revenue receipts from central assistance in 2025-26. The dependence is a structural fact of small, difficult-terrain economies and no plausible reform changes it within a decade. What can change is the composition and the predictability — and on both, the region is served worse than its dependence alone would require. A state that cannot tell in March what it will receive in June cannot plan, and planning 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.

Six findings anchor this analysis:

1. The dependence is deep and long-standing. PRS estimates these 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 gross state domestic product for Mizoram, Nagaland and Sikkim, against 6 to 8 per cent for most states. The all-states figure was 6.4 per cent in 2023-24 actuals and is estimated at 6.8 per cent for 2025-26.
3. These are consumption economies, and the goods and services tax reflects it. For Manipur, Mizoram and Nagaland, revenue from integrated GST settlement accounted for over 70 per cent of state GST revenue, on PRS’s compilation from the GST portal, the Comptroller and Auditor General and state budgets. Under a destination-based tax, revenue accrues where goods are consumed — so the base grows with imports into the state, not with production inside it.
4. 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 materially different fiscal freedom, and no published table puts them side by side.
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, which is forecastable; grants move with decisions, which are not.
6. The largest untapped non-tax revenue is invisible because it sits inside government accounts. In several of these states electricity distribution remains a departmental activity rather than a corporatised utility with published finances. A state that runs distribution as a department cannot see its own subsidy burden or its own collection efficiency, which means the single largest non-tax revenue opportunity in the region is one no finance department can currently quantify.

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

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.

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 settlement figures suggest the base is largely imported consumption. There is real headroom in non-tax revenue, and it sits in the departmentally run utilities, but that is a governance reform measured in years rather than 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, and an essay arguing for more untied money should say what it would accept losing.

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, and the states that have improved did so under the same architecture this essay criticises.

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, and this essay should not conflate them: the case rests on the unscheduled variation in discretionary grants, not on the tapers.

What we would do

1. Publish a tied-versus-untied split for every state, annually, in one table. 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 — the classification in Figure 1 is a direction of tilt because a measured ratio is not published.
2. Issue three-year indicative grant envelopes, 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. This is the concession we would trade for retaining conditionality on outcomes.
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 — and at present the state’s lateness is published and the Centre’s is not.

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 — and on whether the money arrives untied enough to be spent on the problem the state actually has.