For India to remain united, its states must develop equally. Yet, growing arguments suggest that the Union government is pouring funds “like a flood” into the Northeastern states while favouring regions such as Gujarat and Bihar. In contrast, southern states - despite contributing a higher share of national taxes - claim they receive disproportionately less in return. Could such fiscal disparities sow division among citizens and threaten the country’s unity? This editorial analyses the principles of fund distribution, budget data, and public sentiment to uncover the reality.

Principles and Reality of Central Fund Distribution

Under India’s system of fiscal federalism, the Centre must allocate 41% of its divisible tax pool to states, as per the 15th Finance Commission. This devolution is guided by criteria such as population, area, development level, and forest cover. However, grants-in-aid - or discretionary grants - often reflect political influence, sparking criticism of bias.

In the 2024–25 Union Budget, total central expenditure stood at ₹48.21 lakh crore, of which ₹10.21 lakh crore was devolved to states as their share of taxes. When it comes to grants, however, the allocations reveal a stark imbalance:

State/Region Major Allocation (2024–25, ₹ crore) Details

Northeastern States (NER) 5,915 (DoNER Ministry) + 4,250 (new schemes) 10% of total GBS reserved for NER (₹52 ministries). SARDP-NE: ₹19,499 (2025–26 proposal). 47% hike.

Bihar 1,43,069 High due to population and poverty. Between 2017–20, ₹79,403 crore only for health.

Gujarat 1,11,661 Industrial growth, infrastructure projects, and special grants. Criticism of bias toward BJP-ruled state.

Southern States (Total) 28,000 Tamil Nadu, Kerala, Karnataka contribute ~30% of GDP but receive only 18% in returns.

Although the Northeastern region (7.9% of India’s population) receives 10% of the Gross Budgetary Support (GBS) - which seems excessive - it is justified by its geographical challenges and developmental gaps. Bihar and Gujarat’s higher allocations are tied to population size (Bihar: 9.2 crore), poverty, and industrial potential. Still, critics argue that political alignment with the ruling party at the Centre (BJP, NDA) plays a significant role.

Northeast vs Rest of India – What’s the Truth?

The claim that “the Centre showers funds on the Northeast” holds partial truth, but context matters. The Northeastern states - Assam, Meghalaya, and others - face complex geopolitical and tribal challenges. Since 1998, 10% of the GBS has been earmarked for the region, amounting to over ₹50,000 crore. In 2025–26, the DoNER Ministry saw a 47% budget increase, yet most Northeastern states continue to struggle with revenue deficits and low self-sufficiency.

In contrast, southern states like Tamil Nadu and Kerala express growing frustration - “we pay more, but get less.” In 2024, they collectively received only ₹28,000 crore in grants, while poorer and politically aligned states like Bihar and Uttar Pradesh received far higher shares. The special category status granted to Northeastern states and hill regions has fuelled a sense of injustice in the South.

The argument that Bihar and Gujarat receive preferential treatment is about 60–70% valid. Bihar’s allocation (₹1.43 lakh crore) is justified by poverty, yet its NDA alliance status plays a part. Gujarat, on the other hand, benefits from industrial projects like the Green Hydrogen Mission. The Finance Commission’s population-based formula inherently favours states like UP and Bihar, but discretionary grants amplify political imbalance - opposition-ruled states often receive less.

Public Opinion: Rising Discontent and Fear of Division

Public surveys and social media debates have amplified these disparities. In southern states, over 70% of respondents believe that allocations are unjust. In 2024, protests were held in Delhi demanding fair treatment. Hashtags like #SouthIndiaPenalized trended widely on Reddit and X (Twitter).

In the Northeast, citizens acknowledge the heavy inflow of funds but stress that developmental outcomes remain poor due to administrative bottlenecks. Overall, this uneven pattern - where productive states earn more but receive less - has intensified regional resentment. Critics describe India’s cooperative federalism as a “charade.” During the COVID-19 crisis too, central aid distribution was accused of bias, undermining the federal balance further.

Towards Equality: Reforms for a Stronger Union

India’s unity depends on equitable development across all states. The current model - blending formula-based devolution with politically influenced discretionary grants - is widening inequalities. The upcoming 16th Finance Commission must prioritize performance-based allocation, rewarding states for tax efficiency, governance, and GDP growth.

Without reform, the growing North–South and Centre–State fiscal tensions could erode national cohesion. The Centre and states must engage in transparent dialogue to design a fair, balanced model of resource distribution - one that strengthens, rather than strains, the spirit of Indian federalism.

In essence:

Economic equity is not merely a fiscal issue - it’s the foundation of India’s unity. If the flow of funds continues to reflect politics more than principle, the “cooperative” in India’s cooperative federalism may soon become a forgotten word.