New Delhi, Jan. 1 -- The recent transformation of India's flagship rural employment guarantee programme puts a greater financial burden on states, highlighting a long-running source of friction in their relationship with the Union government.

By law, the Union government collects direct taxes and shares it with states. But states say their share has not kept pace with the growth in tax revenues, even though they bear the bulk of social and development expenditure. States also argue that their autonomy is being eroded as the Union government forces them to co-finance centrally sponsored schemes (CSS) that they did not necessarily approve.

Under the Constitution, only the Union government can collect direct taxes, with the Finance Commiss...