This paper examines the relationship between fiscal federalism and social policy in India through an analysis of the effects of a recent effort to increase fiscal decentralisation to state governments on the nature of social policy investment at the sub-national level. Through its analysis, this paper highlights the persistence of a strong centralisation bias in India’s fiscal architecture for social policy. We trace this centralisation bias to the political and administrative dynamics of the federal bargain. The peculiar dynamics of this bargain have created a context where the core goal of centralisation – to ensure equity – is undermined while the expectation of decentralisation – greater accountability through alignment of expenditure with local needs and preferences, fails to take root. India is thus likely to continue to witness significant regional variation in social policy outcomes, despite a centralised financing architecture.
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