The impact of federal transfers on revenue collection by state governments in India in 1992–2013 is re-examined. Several overlooked aspects in previous studies that tested the asymmetric effect of transfers in India are addressed. When we disaggregate total transfers into conditional and unconditional transfers, we find that while tax collection decreases with an increase in unconditional transfers, conditional transfers seem to exert a positive influence on tax collection. The findings raise serious concerns regarding the pattern of intergovernmental transfers in India.
