To put this in historical perspective, we note that the type and size of grants-in-aid have varied over a period of time. There have been five different types of grants: (a) revenue deficit grants, (b) grants for local governments, (c) grants for disaster management, (d) sector-specific grants and (e) State-specific grants. Except for the revenue

The RBI’s report highlights three priorities for states:

1. Control Subsidies: States need to rethink their freebies and focus on sustainable spending.




2. Rationalize Expenditure: Invest more in future development rather than daily operations.




3. Improve Transparency: Standardized reporting and robust data systems are essential.

The distinction between revenue and capital accounts is, in fact, rooted in the history of budget making process, and in the Constitution of India. Revenue deficit grants emanate from the requirement to meet the fiscal needs of the States on their revenue accounts that remain to be met, even after considering their own tax and non-tax resources and