India, Feb. 3 -- Federalism is one of the key tenets of our constitutional framework and national unity. Its fiscal component, which determines how resources and responsibilities are shared among the Centre and the states, is critical to preserving its sanctity. Fiscal federalism debates have become more acrimonious over time thanks to the growing divergence in India's demographic and economic fortunes. States which have done well on economic growth in the medium term have also done well on population stabilisation. This created a situation where they increasingly felt short-changed as their demographic (out)performance was actually taking away the fruits of their economic performance by giving less to them in central taxes. This divide had also become congruent with India's political geography as the BJP was more successful in the low economic growth but more populous states. It politically weaponised this anxiety. Left unresolved, it would have made the forthcoming political delimitation exercise a tinderbox. The 16th Finance Commission (FC) has done well to douse these fires without upsetting the overall fiscal federalism balance. States will continue to get 41% of the divisible pool of central taxes, which is the same as what the 15th and the 14th FCs decided. But richer states have seen an increase in their share and the poorer (and more populous ones) have seen a fall. What is even more important is the fact that a state's share in national GDP is now a determinant of its share in central taxes. This is an extremely important correction of incentives in the fiscal federalism framework. When read with the fact that the 16th FC has also abolished the revenue deficit grants - not all states gained from it - this also disincentivises lack of fiscal prudence. Things such as the proliferation of cash transfers targeted at winning elections called for a strong nudge of this sort. The 16th FC deserves unambiguous praise for having taken this problem head-on and deciding on the side of prudence and justice rather than a counterproductive status quo. This is not to say that fiscal federalism tensions or fault lines will disappear overnight. Structural problems such as growing squeeze of centrally sponsored schemes on the fiscal space available to the central government or attempts to rejuvenate third-tier governments have tested previous FCs. These challenges might remain. But what is important is to recognise what the FC has done to address the most pressing issue confronting fiscal federalism....