The Gadgil-Mukherjee Formula and Devolution of Funds between Indian States:

The Gadgil-Mukherjee Formula was introduced in the context of devolution of funds between different Indian states. It was formulated by D.R. Gadgil and Pranab Mukherjee in 1969, with the aim of ensuring a fair and equitable distribution of financial resources among the states for socio-economic development.

Background:
After India gained independence in 1947, the process of nation-building and socio-economic development became a key priority. However, there were significant disparities among the states in terms of their resource endowments, infrastructure, and levels of development. To address these disparities, it was necessary to allocate funds from the central government to the states.

Objective:
The objective of the Gadgil-Mukherjee Formula was to establish a transparent and objective framework for the distribution of funds to the states, taking into account several factors such as population, per capita income, and fiscal capacity.

Factors considered:
1. Population: The formula took into account the population of each state. States with larger populations were allocated a larger share of funds, as they had a greater number of people to cater to.
2. Per Capita Income: The per capita income of each state was also considered. States with lower per capita incomes were allocated a larger share of funds, as they needed more financial support for development.
3. Fiscal Capacity: The fiscal capacity of each state, which refers to its ability to generate revenue and manage its finances, was also taken into account. States with lower fiscal capacities were allocated a larger share of funds.

Implementation:
The Gadgil-Mukherjee Formula was implemented through the Finance Commission, an independent body set up by the President of India every five years. The Finance Commission is responsible for recommending the distribution of funds from the central government to the states.

Impact:
The introduction of the Gadgil-Mukherjee Formula brought about a more equitable distribution of funds between the states. It aimed to bridge the development gap among the states and promote balanced regional growth. By considering factors such as population, per capita income, and fiscal capacity, the formula ensured that states in need of greater financial assistance received a larger share of funds.

Conclusion:
The Gadgil-Mukherjee Formula played a crucial role in promoting socio-economic development in post-Independent India. By providing a fair and objective framework for the distribution of funds between states, it aimed to address regional disparities and foster inclusive growth.